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Covid-19 pandemic shifts investors' focus to the 'S' of ESG

Updated: Aug 19, 2021

The coronavirus pandemic has increased the importance of the social aspects of ESG for investors, according to a survey by Berenberg WAM.

Among 112 respondents, who were primarily from the UK and Germany, 47% considered the social ‘S' element of ESG as the most important, followed by 35% selecting environmental factors ('E'), while 18% said governance (‘G') took precedence.

The survey found the pandemic had increased the importance of social factors the most, followed by environmental factors.

When asked to predict what the most relevant ESG product would be for respondents in five years' time, actively managed ESG strategies emerged as the favourite for 19% of respondents. This was followed by 17% for impact investments and 15% for sustainability/SDG-linked bonds.

The findings point towards potential wariness of passive vehicles for ESG purposes, where only 6% of respondents chose it as the most relevant product in five years' time.

Richard Brass, Berenberg's head of wealth and asset management in the UK, said: "We are seeing a substantive increase of interest by investors across the E, S and G spectrum.

"The pandemic has resulted in companies, and more broadly governments, being judged on how they treat individuals and employees, especially in areas and sectors hard hit by lockdown measures, and how they adapt for different working practices. Our survey confirms the ongoing focus on the environment and climate change, and yet Covid-19 has prompted investors and asset managers to place greater prominence to social issues.

"Investors are recognising the importance of actively managed ESG strategies as a contributor to change. Equally, being able to assess use of invested money and funds' efforts to support ESG factors will only become more important. Sentiment shows that there is more work to do among impact data providers to enable transparent and comparable statistics."

For private investors, the change in importance as indicated by the net score was highest for social factors, followed by governance then environmental factors. However, private investors were more divided in what they consider to be more significant now given the pandemic, with 42% of the private investors who had answered this question choosing environmental concerns and 39% of these participants choosing social factors.

This implies that although social factors have gained greater consideration as a result of the pandemic, environmental factors are also a priority with regards to their investments.

One respondent noted that while social factors will rise in importance as a result of the pandemic, the climate crisis is not going away. In addition, some respondents stressed the fragility of the environment which we inhabit and depend on, and so without greater care for it, issues will persist or worsen.

Those surveyed also had mixed views on using third party impact data providers to measure the ESG impact of their investments. Only 12% found these providers ‘very helpful', although 47% thought they were ‘somewhat helpful', and 10% said they were not helpful at all.

Some written responses showed investors, while not dismissing third-party impact data providers, felt their metrics at times lacked sufficient consistency or access to relevant data.

When asked about their expectations for the 2021 United Nations Climate Change Conference (COP26), scheduled to take place in the UK in early November, respondents were divided: 41% were generally optimistic about the conference, but 32% said they expected little to no progress.

Some of the written responses which had referenced "specific measures" believe restrictive measures on carbon emissions should be implemented in the form of carbon taxation, regulation and policies.

Relatively few had suggested financial incentives to encourage more environmentally-friendly measures. Some participants who do not expect any progress cite the fear of parties paying ‘lip service' as while the treaty is legally binding, the achievement of NDCs may not be.

The survey was conducted among members of the European investment community, including asset managers and private investors, on attitudes to ESG/impact-related topics and the UN Sustainable Development Goals (SDGs).


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