In 2020, under the circumstances caused by the coronavirus, 19 ESG funds outperformed S&P 500
. It shows how ESG works for risk management and performs well in volatile markets. Morningstar
shows some examples of long-term ESG risks:
- Governance: The creation of fraudulent accounts caused by prioritizing quarterly results over the interests of long-term investors.
- Environmental: Greater regulatory risk, including higher taxes and fees imposed on emissions.
- Social: The opportunity cost of failing to take care of employees.
Some investors bet on ESG prioritizing social impact over financial outcomes.
Many of them are younger investors who genuinely want to build a better working environment and a sustainable society for their retirement and their children's generation. In 2017, Morgan Stanley
found that 86% of Millennials are interested in sustainable investing.
Recently, the concept of "impact investing," which combines social and environmental contributions with economic returns, has also gained attention.
Impact investing supports projects that aim to create a better society and environment, but unlike donations, it does not compromise on economic returns. Social and environmental impact as well as financial return are set as KPIs and the investment performance is strictly measured.
For example, in agriculture, investments in eco-friendly agriculture reduce environmental impact, create jobs, increase food self-sufficiency, and increase profits by improving productivity.
As this trend grows, the value of ESG-based markets will continue to increase, creating a virtuous cycle for companies and investors working on ESG and society, and the environment.