In the midst of historic market volatility related to the coronavirus, companies with strong ESG commitments offer a bright spot in an otherwise murky economic landscape, according to Savita Subramanian, head of Environmental, Social and Governance Research and U.S. Equity and Quantitative Strategy for BofA Global Research. As the pandemic intensifies global challenges such as food insecurity, access to healthcare and racial and economic equality, a strong focus on ESG could bring benefits to society, businesses and investors alike, Subramanian says. “Evidence suggests that companies’ health and society’s health may be closely intertwined and will likely be even more intertwined in the future.”
Here, Subramanian talks about the financial signals that appear to tie sustainability, social impacts and responsible governance to companies’ financial well-being.
Market volatility is nothing new, but what we’ve been experiencing this year feels different. What’s going on?
From February to March we experienced the fastest market downturn in history.footnote1 But what’s really unusual is the nature of the crisis, driven by a deadly virus and the need for social distancing around the world. This is the first time in several generations that we’ve seen a global economic downturn driven entirely by a social challenge. When you look at it in the context of ESG, this has brought the “S”—for social—into sharper focus than ever before.
The corporate response has been fast and furious. From multinationals to small companies, everybody around the world stepped up their efforts to fight the impact of the virus. Textile companies shifted their operations toward making masks, financial companies exercised loan forbearance for consumers and businesses that were hardest hit, and many companies froze layoffs.
In addition to the social benefits these and other actions bring, it appears that looking out for the good of society can be good for companies, too. For example, based on aggregated client flows data, $8.2 billion was pulled out of equity ETFs when the S&P 500 index went from a record high in late February to bear-market territory just four weeks later.footnote1 During that same period, the ESG funds tracked by BofA Global Researchfootnote2 continued to attract inflows, suggesting that ESG fund managers were less pressured to sell stocks with strong ESG characteristics.