Search this website. You can use fund codes to locate specific funds

Why sustainability is here to stay

Despite claims that sustainable investing was a luxury supported by a ten-year-long bull run, evidence suggests that the green evolution in finance has been resilient throughout the coronavirus crisis and represents a secular change. Over the past few months we have seen record flows into ESG products across the globe1. and a burst of ‘green’ and ‘blue’ capital markets activity. In his latest report,  The sustainability of sustainability: green finance during the pandemic’, Mitch Reznick, Head of Research and Sustainable Fixed Income, International at Federated Hermes, explains why sustainability is far more than a passing trend.

The sustainability of sustainability

The rise of ESG investing has long been dismissed by critics as a consequence of the longest bull run in history; a mere nice-to-have as opposed to a necessity. However, if that were true, we would have expected this wave to break in the first quarter of 2020. Yet green activity across asset classes has continued to grow, and there is evidence of this in all corners of the investment world. For example, we have seen companies like Barclays and Total commit to becoming net zero companies by 2050, ESG indexes outperforming the broader market2 and continued growth in sustainable-themed bonds during Q13, despite the significant disruption experienced by capital markets. 

The pandemic has brought ESG and sustainability issues to the fore and a strategic priority for many companies that want to outlive the upheaval. This is something that we expect to endure through the current pandemic and into the future.

Sustainable investing: driving a green recovery

The coronavirus pandemic has also resulted in a paradigm shift for responsible-investment strategies – many of which outperformed during the crisis. Up until the sell-off in March, responsible portfolios were often used as a risk-mitigation tool: investors incorporated ESG factors with the view that it would help them avoid companies that destroy shareholder value.

But the pandemic has ushered in a heightened sense of social awareness. Policy makers, companies – and indeed society as a whole – now realise there is a need to build resilience in healthcare, food and water security, as well as across supply chains. Moreover, the crisis has also put climate change and workers’ rights under the spotlight. 

This shift in consciousness can be seen when looking at sustainable fund launches. Despite the volatility experienced during the first quarter, about 100 sustainable funds were launched throughout the world in Q1 2020, up from just over 80 in the same period a year earlier (see figure 1).

Figure 1. Holding up: global sustainable fund launches

Source: Morningstar Direct, Morningstar Research as at March 2020

We have seen a similar phenomenon in the fixed-income universe. The Climate Bonds Initiative estimates that at least $49bn-worth of US green bonds will be sold this year, up from less than $1bn in 2013. And during the first quarter, issuance of sustainability-tagged bonds grew by 70% year-on-year.

Figure 2. Bounding ahead: sustainable bond issuance

Source: BloombergNEF, as at 31 March 2020.

A call to action: driving long-term thinking

The rise in green capital-market activity over the last six months has been nothing short of astonishing – and all the more so given that policymakers, companies, investors and individuals have been blindsided by the wide-reaching impact of the coronavirus pandemic.

Yet it seems that the exogenous shock of the virus has prompted a rethink – and a realisation that there is an urgent need to prepare and protect against future global threats. During these turbulent times, a focus on good ESG behaviours is more important than and can help highlight the changes that we need to make to create a more equitable, sustainable society. 

The full report can be found here.

  1. 1Calastone - Fund Flow Index - May 2020 Special Edition
  2. 2Morningstar, May 2020
  3. 3BloombergNEF, as at 31 March 2020.

Latest Articles

Federated Hermes joins the One Planet Asset Managers initiative
Federated Hermes joins the OPAM initiative
All eyes on Sustainability this Earnings Season
Our dedicated commitment to sustainable wealth creation means we are not only busy forming financial expectations for the upcoming earnings season, but ESG expectations too.
Federated Hermes launches residential brand Hestia and expands portfolio with two new acquisitions
The International business of Federated Hermes has today announced the launch of a new Residential brand – Hestia.
EOS at Federated Hermes publishes new Corporate Governance Principles for 2021
EOS at Federated Hermes, the leading stewardship provider, has today published its 2021 UK Corporate Governance Principles. In a letter to 124 listed UK companies, EOS has outlined its expectations across a number of important strategic governance, environmental and social topics.
Federated Hermes managed assets see success in the GRESB 2020 results
A number of portfolios and assets managed by the international business of Federated Hermes have achieved success in in this year’s GRESB Real Estate Assessment results.
Credit Investors not valuing their privacy
Evidence shows that bonds issued by private companies offer no premium versus those with public equity market capitalization. Historic data coupled with elevated risks highlight why Fraser Lundie, Head of Credit at the international business of Federated Hermes, views this as a mispricing.

Press Contacts

Johnny Weir,
Head of Corporate Communications
Rachael Dowers,
Manager - Corporate Communications
Hannah Bellfield,
Assistant Manager - Corporate Communications
Harriet Hall,
Associate - Corporate Communications