ESG Investing is evolving extremely rapidly, in Europe and abroad. The importance of taking into account environmental, social and governance factors in investment decisions has become more acute with the coronavirus. Past Amundi research has underlined that ESG integration has been a driver of alpha since 2014.
This article explores whether or not ESG can be considered as a new factor, alongside traditional factors (value, momentum, etc.) and the key findings are:
– In Europe, ESG has become a beta strategy and therefore is crucial for diversification in multifactor portfolios.
– In North America, ESG remains an alpha strategy and diversification adds little value.
This difference is most likely the result of greater investor mobilization in Europe than in North America. Going forward, the coronavirus may act as a catalyst for the ESG landscape, with four elements that may play out in the near future:
1. An increasing focus on the Social pillar, as health systems, education, inequalities, workplace safety and so on are
in the limelight.
2. Mounting regulation and supervision, with the integration of ESG into considerations on systemic risk.
3. A new framework for measuring economic performance that includes ESG criteria.
4. A new set of values that may lead to the growth of certain markets including social bonds.