The effects of the COVID-19 pandemic have been global and pervasive: economies, healthcare systems, and daily life have been severely disrupted. One bright spot that industry observers have noted, however, is the seeming resilience through this crisis of companies, stocks, and investment strategies with a focus on environmental, social, and governance (ESG) factors. Although the success of ESG-based investing and finance during the COVID-19 crisis remains a subject of debate, many investors, companies, and governments are expressing ongoing interest in ESG-focused investments.

ESG's pandemic performance: an unclear verdict

Multiple financial institutions and market participants such as HSBC, Blackrock, and Morningstar have found that, during the crash and the subsequent market recovery, firms with high ESG ratings have been less volatile and cyclical and outperformed both industry benchmarks (such as the MSCI World Index and the Euro Stoxx 50 Index) as well as companies with lower ESG ratings.

Several academic studies have reached similar conclusions. One study based on U.S. firms found that during the COVID-19 crisis, the stock prices, operating margins, and volatility of firms with high ESG ratings exhibited greater strength than those with lower ratings. Similarly, a study based on an analysis of constituents of China's CSI300 Index found ESG scores to be positively correlated with short-term cumulative returns, and that these returns were most positively correlated with positive environmental and governance factors.

Other sources provide different perspectives on the benefits of ESG: a recent study of U.S. equity share prices found that ESG is, in fact, not an important determinant of crisis period returns and does not offer any predictive power of performance during a crisis. Rather, the study found traditional accounting-based measures of financial flexibility, industry affiliation, and market-based measures of risk to be better predictors of performance. Similarly, an analysis of mutual fund flows-and particularly retail investment flows-found that high ESG-focused funds experienced a sharper decline than other funds during the crisis.

Rise in ESG investment through the crisis

Regardless of a lack of current consensus on the role of ESG factors, however, many investors, companies, and governments continue-even in spite of the widespread economic turmoil of 2020-to embrace ESG-based finance and investing more enthusiastically than ever. For example, by the end of June, assets under management in sustainable investment funds had reached over a trillion dollars with a 72% increase to reach $71.1 billion in the second quarter of 2020.

In Canada, net inflows into Canadian exchange traded funds tracking companies that focus on ESG factors have reached C$740 million, up from C$142 million in 2019. While the issuance of green bonds has slumped during the crisis (down by 90% between February and March 2020), sustainability and social bond issuance has increased from a monthly average of $1.2 billion in 2018/19 to an average of $7 billion in 2020.

In 2020, approximately half of newly issued social and sustainability bonds have been specifically COVID-19-related, while the balance has been more general social and sustainability bonds. For example, the Bank of America has launched a $1 billion corporate social bond with the proceeds to be allocated to health care industry lending in the firm's Global Commercial Bank, specifically to not-for-profit hospitals, skilled nursing facilities, and manufacturers of health care equipment and supplies. The IFC has issued a $1 billion social bond in response to the pandemic, and multilateral development banks such as the African Development Bank and Inter-American Development bank have issued COVID-19 themed bonds aimed at raising finance for emerging market healthcare systems.

Institutional investment appeal

Institutional investors such as Blackrock have also signaled their intention to increasingly emphasize ESG factors in their investment decisions. In its report "Our Approach to Sustainability", Blackrock outlines its approach to ESG investing. In 2020 alone, it has taken voting action against 53 of 244 companies that it has determined to fall short of its expectations in relation to ESG performance. Blackrock has also signaled that it will take similar action in 2021 against any of the remaining companies that fail to make progress with respect to ESG objectives.

Blackrock is not alone among institutional investors whose focus on ESG factors has remained consistent during the COVID-19 pandemic. A BNP Paribas survey of 96 European institutional investors and 33 intermediary distributors found that almost a quarter of respondents (23%) reported a greater focus on ESG criteria in their investment decisions. In the future, 70% expected social considerations to become very or extremely important in their investment decisions. The most salient social considerations among those surveyed were labour standards (38%), excluding harmful investments (31%), human capital management (23%), and gender equality (22%).

ESG disclosure

The strength of ESG investing will certainly increase pressure on companies to demonstrate how they are incorporating ESG factors into their businesses. As with reporting on exposure to climate change risk1, steps are now being taken by a group of international organizations2 to develop a comprehensive corporate reporting system for ESG that includes frameworks and standards for sustainability disclosure as well as an integrated reporting framework to connect sustainability disclosure to existing disclosure regimes. While the push for standardized disclosures is in its early stages and the final result is still uncertain, market pressure is providing a strong signal that such standardization will not be a wasted effort.


ESG investing has proven resilient to the tests put to it by the COVID-19 pandemic. Contrary to the expectations of many, investors have not treated ESG-based investing as a luxury to be jettisoned in a time of crisis. Instead, focusing on companies and investment products with a high ESG rating increasingly appears to be a regarded as a prudent approach to addressing risks that have gained heightened prominence during 2020's global health and economic crisis.


1. See our January 28, 2020 article "Sustainable Finance Gaining Traction".

2. They are the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the Climate Disclosure Standards Board (CDSB), the CDP (formerly the Carbon Disclosure Project), and the International Integrated Reporting Council (IIRC).

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