Coronavirus Pandemic is Changing the Way Investors Look at ESG ETFs

The coronavirus has reshaped the world as we know it, and it may have even changed the way investors look at exchange traded funds that target environmental, social and governance, or ESG, principles.

U.S.-listed sustainable funds are enjoying record inflows year-to-date, despite the market turmoil, CNBC reports.

According to Morningstar data, global sustainable funds saw inflows of $45.7 billion, while the broader fund universe had an outflow of $384.7 billion. In the U.S., sustainable funds experienced a record $10.5 billion of inflows over the first quarter.

Among the most popular ESG-related ETF plays so far this year, the iShares MSCI USA ESG Optimized ETF (NasdaqGM: ESGU) attracted $5.0 billion in net inflows, iShares MSCI EM ESG Select ETF (NasdaqGM: ESGE) saw $2.6 billion in inflows and iShares MSCI EAFE ESG Select ETF (NasdaqGM: ESGD) brought in $956 million, according to XTF data.

Analysts and investors argue the pandemic will further emphasize investing with a conscience. The “E” aspect was arguably the most high-profile of the three considerations in previous years as warnings of climate change triggered a greater change. Now, a company’s social and governance attributes are becoming increasingly more important as investors scrutinize companies’ responses to the COVID-19 pandemic.

“The rebound in civil society has been impressive, with an increase in volunteering, social cohesion, community support, and focus on public good vs. private freedoms,” JPMorgan said in a recent note. “We see the Covid-19 crisis accelerating the trend to ESG investment.”

Many of these ESG funds have also outperformed their benchmark indices. Jon Hale, Morningstar’s director of sustainability research, pointed out that this is the first time ESG-related funds have been stress tested in a market downturn, and they have been holding up rather well so far.

“We expect increased investor focus on ESG considerations after COVID-19, with particular demand for greater corporate transparency and stakeholder accountability,” UBS said in a recent note. “The crisis underscores the relevance of ESG considerations to company performance and investment returns, and we expect that this will continue to influence corporate and investor actions going forward.”

For more information on socially responsible investments, visit our socially responsible ETFs category.