BlackRock Confirms Resilience of ESG During Market Downturn

The first quarter obviously wasn’t a banner one for any sector given the widespread effects of the pandemic. However, a recent BlackRock report entitled “Sustainable Investing: Resilience amid Uncertainty,” noted that environmental, social and governance (ESG) was able to withstand the storm.

The outperformance of ESG was apparent across the globe.

“In the first quarter of 2020, we have observed better risk-adjusted performance across sustainable products globally, with 94 percent of a globally-representative selection of widely-analyzed sustainable indices outperforming their parent benchmarks,” BlackRock noted.

“Companies with strong profiles on material sustainability issues have the potential to outperform those with poor profiles,” the report added. “In particular, we believe companies managed with a focus on sustainability should be better positioned versus their less sustainable peers to weather adverse conditions while still benefiting from positive market environments.”

There were also some qualitative factors contributing to the outperformance, such as employee satisfaction, customer relations, and the effectiveness of leadership.

“Overall, this period of market turbulence and economic uncertainty has further reinforced our conviction that ESG characteristics indicate resilience during market downturns,” BlackRock added.

BlackRock also noted that the March sell-off spurred an investor rebalancing of portfolios, which includes more exposure to ESG. Per a HedgeWeek article, “BlackRock said, highlighting how global sustainable open-ended funds drew some USD40.5 billion in new assets during Q1, a 41 percent increase year-over-year.”

“In this volatile environment, investors have been seeking to understand what characteristics contributed to comparative resilience in portfolios and how to incorporate these characteristics in their own investments,” the report said.

Investors who want ESG exposure via an ETF wrapper can take look at the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG). EASG seeks investment results that correspond generally to the performance of the MSCI EAFE ESG Leaders Index.

The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index. The underlying index is a capitalization-weighted index that provides exposure to companies with high ESG performance relative to their sector peers.

For ETF investors looking for ESG exposure within the fixed income asset class, they can look to the iShares ESG U.S. Aggregate Bond ETF (NYSEArca: EAGG). EAGG seeks to track the investment results of the Bloomberg Barclays MSCI US Aggregate ESG Focus Index, which has been developed by Bloomberg Barclays Capital Inc. with environmental, social and governance (“ESG”) rating inputs from MSCI ESG Research LLC pursuant to an agreement between MSCI ESG Research and Bloomberg Index Services Limited or an affiliate.

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