Friday, 17 March 2023 04:00

How Will ESG Perform in a Recession?

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With many economists predicting an economic downturn, investors may wonder how ESG investments will perform in a major recession. To find the answer, Portfolio Adviser asked a cross-section of industry commentators for their views. According to Max Richardson, senior director, of wealth planning at Investec Wealth & Investment, research on ESG performance during recessions is limited, but available studies suggest mixed results. For instance, a study by MSCI found that ESG stocks outperformed traditional ones during the 2008 financial crisis, with a lower decline in stock prices and a faster recovery. However, a study by the London School of Economics found that ESG stocks performed no better or worse than traditional stocks during the 2008 crisis. In fact, the impact of the crisis on ESG stocks was largely dependent on the specific industries and companies, not their ESG status. Amanda Sillars, fund manager and ESG director at Jupiter Merlin believes funds that exclude entire sectors on ESG grounds, which are typically oil, gas, miners, and defense, "run the risk of delivering weak absolute performance if those sectors outperform.” In contrast, “Fund managers who retain a broad investment universe and select companies that generate strong cashflows, minimal debt and are valued cheaply, while keeping company engagement at the heart of their investment strategy, are likely to fare better during a recession.

Finsum:According to a wealth plannerstudies on ESG performance during a recession are mixed, but a fund selector believes that managers who focus on engagement and not exclusion will fare better in a recession.

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