The COVID-19 pandemic is a surprise test of environmental, social and governance-focused investing (ESG). Companies are under an intense public microscope when it comes to living up to their values while facing immense financial pressure. Investors are anxiously watching to see how the do-gooder theme plays out in their portfolios amid the volatility.
So far, ESG investments have held up well against the force of a downturn.
In the first quarter, 83 per cent of Canadian responsible investment funds outperformed their average asset class, according to Fundata statistics. The MSCI Canada ESG Leaders Index topped the broader MSCI Canada Index by 68 basis points over the same three-month period.
While prioritizing the environment and sustainability may sound like a tough sell with so much downward pressure on the markets, Lindsay Patrick, head of sustainable finance for RBC Capital Markets, says the environmental “E” tends to overly colour perceptions of ESG.
She’s reminding investors that the theme is often strong while playing defence.
“The Canadian banks have done a tremendous job acting as a sector in terms of working with the Canadian government to pull together loans for small businesses. she told Yahoo Finance Canada. “The telco companies have done a great job making sure we have access to technology and services needed to operate more virtually than many of us are used to.”
While macro factors are firmly in the driver’s seat for markets these days, Patrick points to Telus (T)(TU) as one company weathering the storm better than others while hitting ESG targets. Shares have climbed nearly 12 per cent in the last month.
The Vancouver-based telecom company has announced a number of support measures during COVID-19, including a $250,000 donation to healthcare leaders on Friday. Telus also waived internet fees for low income families. CEO Darren Entwistle recently donated three months of his base salary to purchase personal protective equipment for frontline workers during the crisis.
“I think we should absolutely be looking at this as a real-world test for ESG,” Patrick said. “Business resilience is an ESG factor, and it is corporate culture and decision making that enables companies to pivot business into things like making hand sanitizer and masks. How well you can bring your employees through this journey and help them stay positive and engaged is another big part of ESG.”
Last year, RBC said Canadian oil and gas companies would be eligible to tap its green bond debt offerings in order to help heavier polluters finance green energy projects. Enbridge (ENB.TO) (ENB), Fortis (FTS.TO)(FTS), and Suncor (SU.TO)(SU) are among the energy firms Patrick sees executing on ESG principles.
“Suncor is very well-regarded from an ESG perspective. They have set ambitious goals for themselves around carbon emissions, health and safety, and Indigenous communities,” she said. “There are absolutely ESG leaders in the energy sector in Canada.”
Even the federal government’s response to the historic hit to the energy sector brought on by COVID-19 erasing demand for oil includes elements of ESG. Ottawa’s $2.45 billion aid package is focused on cleaning up orphaned oil and gas wells and offers incentives to reduce methane emissions.
Patrick said it’s yet another example of growing consideration for the climate change and socioeconomic inclusion principles that ESG represents.
“Canadian pension funds and institutions were among the first that really adopted ESG frameworks and integrated that into investment decisions. Those pension funds are now on their second and third generation ESG strategies,” Patrick said. “ESG is growing in momentum across Canada. Our corporate clients care about it like never before.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.