Covid-19 impact: ESG returns likely to be in focus amid market volatility

An analysis of an index which tracks the performance of such companies versus the broader market shows wide outperformance

Investment in companies which attempt to follow environmental, social, and governance (ESG) standards are likely to be in focus, even as the markets swing wildly amid the coronavirus disease (Covid-19) pandemic.

An analysis of an index that tracks the performance of such companies versus the broader market shows wide outperformance. The MSCI India ESG Leaders Gross Total Return USD Index has done better than the MSCI India Index over one-month, three-month, and six-month periods, as well as over longer time periods.

The difference in returns has ranged between 0.5 per cent and 6 per cent over one-, three-, and six-month periods. They also retain the lead over one-year, three-year, and five-year periods. The outperformance for ESG funds there ranges between 8 per cent and 27 per cent.  The ESG index has fallen 23.8 per cent over the past three months, which captures the worst of the fall because of the pandemic.

The MSCI India index was down 28.2 per cent during the period.  The last one month saw a bounce. The ESG index did better there as well.  It was up 6.2 per cent, compared to 5.6 per cent for the non-ESG index.

Jimmy Patel, managing director and chief executive officer at Quantum Asset Management Company, which also runs an ESG fund, said adherence to such principles can help companies bounce back quicker. They can be expected to be already compliant with employee safety requirements and other needs for restarting production, for example. Investors should evaluate such schemes before investing over a longer term period.  

 

 

“The time horizon should be between two-three years,” said Patel.

Meanwhile, the stock market is expected to remain volatile. The S&P BSE Sensex dropped 38.1 per cent from a closing high this calendar year of 41,952.6 to 25,981.2. It has since climbed back to 31,743.08.

“Fear produces the most interesting prices in this market,” said Raamdeo Agrawal, chairman, Motilal Oswal Financial Services. He believes that the wild fluctuations are an outcome of being subject to what is happening elsewhere in the world.

The spread of Covid-19 and its associated economic ravages triggered the collapse. Subsequently, strong stimulus packages globally were a cause for optimism, as was any news of a cure or vaccine. So when markets are seen to be going up without changes in fundamentals, it is largely an outcome of optimism and hope.

“They are seeing an end to this problem,” said Agrawal.  

The five-year returns are also significantly higher for the ESG index. The MSCI India index gave returns of minus 12.7 per cent. The MSCI India ESG index has given positive returns of 13.7 per cent.