Rebecca Vogel reflects on the impact that the pandemic has had on ESG over the last few months and shares her thoughts as to why ESG, as a subject matter, has risen to the fore.

Over the last few months it has often felt that, if you wanted to change the subject from endless speculation about the coronavirus situation, then Environmental, Social, Governance (ESG) was the next topic on the list. Almost everyone has a strong opinion on the subject, whether they believe it to be a fad that will pass, a theme that will last, or a fundamental shift that will soon become so mainstream as to hardly warrant conversation. These views are all widely held and discussed, but perhaps less widely discussed is why ESG as a subject matter has risen to the fore recently.

As I see it, the question is this: is ESG having its moment fuelled by recent events such as high-profile environmental disasters, social injustice and the COVID-19 pandemic? Or is the increased uptake an entirely logical occurrence and simply the current step in a much broader shift?

On the one hand, the increased frequency of massive and devastating environmental events all over the world has provided stark images of the very real and lived effects of climate change. On a cynical note, one might also observe that such events as the massive forest fires in the developed economies of Australia and the United States appear to have had the greatest effect on the groupthink. Similarly, the impact of the pandemic across the globe and the rising tide of the Black Lives Matter movement have sharpened people’s awareness of, and interest in, a multitude of social factors across all areas of life.

Therefore, we might deduce that the increase in the awareness of ESG as a topic, as well as investment in ESG-aligned investment vehicles, has been facilitated by a heightened general awareness of the issues at stake.

Perhaps we are observing the mainstreaming effect of decades' worth of gradual change. The pioneers of ethical and impact investing have been integrating ESG factors into their analysis for years, just as the trailblazers of the environmental movement have been taking both private and public action for decades. Those early ‘green’ pioneers have achieved a goal any marketer would be envious of: they have successfully changed people’s behaviour.

It has become mainstream to use a reusable water bottle or recycle your household waste (with a whole generation growing up with this as normal practice). Similarly, it should come as no surprise that a logical progression of these trends is an uptake in interest and a desire to invest in a sustainable and ethically conscious manner.

The reality, I am sure, is a combination of the two. Yes, these themes have been growing and present for decades and ideas that might once have seemed radical are now broadly mainstream. The most commonly heard argument of recent years against ESG investing has been one of caution, fear of sacrificing returns in favour of what many saw as essentially philanthropy. Increasingly this view is being overturned as the evidence emerges to show that these fears are unfounded.

Yet, I am also sure that the high-profile events of the last 6-12 months have played their part in bringing environmental and social issues to the front of people’s minds. After all, it is hard to have a ‘not in my backyard’ mentality when events are unfolding, quite literally for many, in their backyards.