During this period of market turbulence and economic uncertainty, BlackRock (the world’s largest asset manager) finds that sustainable companies fared better (with 94% of sustainable indices outperforming their parent benchmarks in Q1 2020) and investors have preferred sustainable funds (with a 41% increase year-over-year in Q1)

Week of 18 May 2020

During this period of market turbulence and economic uncertainty, BlackRock (the world’s largest asset manager) finds that sustainable companies fared better (with 94% of sustainable indices outperforming their parent benchmarks in Q1 2020) and investors have preferred sustainable funds (with a 41% increase year-over-year in Q1)

BlackRock, the world’s largest asset manager ($7.4tn AUM) published a new report for institutional and professional investors, titled Sustainable investing: Resilience amid uncertainty.

Here are some of the findings from their research:

  • “Companies with strong profiles on material sustainability issues have potential to outperform those with poor profiles. In particular, we believe companies managed with a focus on sustainability should be better positioned versus their less sustainable peers to weather adverse conditions while still benefiting from positive market environments.”
  • “The recent downturn was a key test of this conviction. In the first quarter of 2020, we have observed better risk-adjusted performance across sustainable products globally, with 94% of a globally-representative selection of widely-analyzed sustainable indices outperforming their parent benchmark.”
  • “Casual observers initially attributed the strong performance of ESG funds to their relative underweighting to traditional energy companies, whose prices fell further than the overall market during the downturn. However, our own analysis in this paper and third- party research shows that the underperformance of traditional energy explains only a fraction of the outperformance seen in many sustainable funds.”

BlackRock identifies fifteen “descriptors” that focus on different, material sustainability issues, and seeks to understand the relevance of each descriptor to a company’s long-term prospects. BlackRock finds that the following three sustainability descriptors play a particular role in driving company outperformance:

  • Job satisfaction of employees;
  • The strength of customer relations; and
  • The effectiveness of the company’s board

In addition to this outperformance of sustainable companies, BlackRock finds that investors during the recent market turmoil have increasingly preferred sustainable funds, with global sustainable open-ended funds bringing in USD 40.5bn in new assets in the first quarter of 2020 (a 41% increase year-over-year) and U.S. sustainable funds attracting a record USD 7.3 billion for the quarter. This “upend[s] an oft-cited concern pre-COVID crisis that during sharp market downturns, investors will de-prioritize sustainability.”