Sustainable investing is set to surge in the wake of the coronavirus

The coronavirus pandemic altered society in immeasurable ways, including, of course, investing. Stocks that benefited from people staying home, such as Netflix and Zoom Video, outperformed expectations in the past few months, while retailers and airline companies, among others, saw their stocks fall off a cliff. And now some of those worst-performing stocks of March and April are now staging a comeback, as economies begin to reopen.

But there could be a more long-lasting effect on Wall Street: Covid-19 may well prove to be a major turning point for ESG investing as the pandemic alters society’s values.

This investing approach, which evaluates a company’s environmental, social and governance ratings alongside traditional financial metrics, was already coming off a banner year, and its reach continues to expand. So far this year, U.S.-listed sustainable funds are seeing record inflows, despite the market turmoil.

And analysts and investors say that the pandemic — and the death and destruction left in its wake — will further prioritize investing with a conscience. But where once the “E” was arguably the most high-profile of the trio of considerations, a company’s social and governance attributes could become increasingly important as investors scrutinize corporations’ responses to the pandemic, as well as their viability looking forward.

“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 to clients. “We see the Covid-19 crisis accelerating the trend to ESG investment.”

Conscience aside, these funds are also attracting record levels of cash because they’re proving that they can offer comparable, if not market-beating, returns. The Nuveen ESG Large-Cap Growth ETF (NULG) has returned 10% this year, for example, while the iShares ESG MSCI USA ETF (ESGU) — the largest of its kind with more than $7.1 billion in assets under management — has returned 0.6% year to date. The S&P 500, by comparison, is down roughly 1% for the year.

This short a time frame does not a trend make, of course, but many of these funds have also outperformed their benchmark indices over the last year and even longer. Jon Hale, Morningstar’s director of sustainability research, noted that this is the first time these sorts of funds are being put to the test during a market downturn, and so far they’re holding up just fine. Sustainable investing has been around for decades, but the ESG fund boom has only really taken off over the last five years, meaning this corner of the market has yet to experience a recession.

“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 to clients. “The crisis underscores the relevance of ESG considerations to company performance and investment returns, and we expect…

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