Deutsche Bank Research (“DB”) published a report on July 1, 2020 that analyzed Environmental, Social and Governance (“ESG”) investing throughout the global pandemic thus far. I’ve highlighted below some of their findings, which I believe are interesting and, in some instances, surprising. The most popular ESG topic at the beginning of 2020 was climate change. Since the global pandemic hit, the focus of ESG shifted to employee wellness (+48% increase in interest) and accounting practices (+38% increase in interest). The rise in interest in accounting practices is somewhat expected based on past tail risk events, which have historically uncovered corporate accounting issues. The ESG topics that have declined in interest as a result of Covid-19 are diversity and inclusion and board structure. DB drew these conclusions by using AlphaSense to analyze company documents (i.e. SEC and global filings, press releases, event transcripts, company presentations and ESG reports) to see which topics were discussed most/least and at an increasing/decreasing frequency. According to the Global Impact Investing Network (“GIIN”) 2020 investor survey, 15% of investors intend to add to their impact investment allocations, 20% plan to do the opposite and decrease their allocation to impact investments, and 65% remain undecided. For those that plan to increase their allocation to impact investments, they plan to only increase their allocation by 2%, which is far less than the average 13% increase witnessed in 2019. Bloomberg analyzed 300 ESG funds from June 2015 – June 2020, and the data revealed that investors contributed less and less dollars to ESG exchange-traded funds (“ETFs”) in 2020. Specifically, ESG fund inflows peaked in January 2020 at approximately $6.5 billion and have since declined to approximately $1.8 billion in June 2020. One plausible reason for the decline of dollars flowing into ESG ETFs is that investors are concerned how new themes brought about by Covid-19 will factor into ESG investing. For example, there is a new focus on supply chain concentration, which will impact ESG analysis and could result in companies being either upgraded or downgraded. Provided the massive impact Covid-19 has had on the world in 2020, I thought it would be informative to share a few specific effects felt within the ESG/impact investing space.
