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ESG sector sees increased demand and outperformance in 2020

15 December 2020

The Covid-19 pandemic has driven demand for ESG funds, while the sector outperformed its peers in 2020, new research from Willis Owen revealed.

According to its annual ESG review, Baillie Gifford’s Positive Change and Global Stewardship funds led the march, with the former returning more than five times as much as the average fund in the IA universe. The Positive Change fund recorded a 76.13% return, while the Global Stewardship fund delivered a 63.15% return. Guinness Sustainable Energy followed closely behind with a 59.44% return and Aegon Global Sustainable Energy with a 51.67% return.

On average in the global sector, ESG funds delivered a return of 22.3% this year, versus the IA Global sector average of 13.2%, the investment firm said (see table below).

Adrian Lowcock, head of personal investing, Willis Owen, said: “2020 was truly the year when ESG funds emerged from the side-lines. The sector has shone on a global basis, with the growing number of options open to global ESG equity managers helping these focused strategies to outperform.

“While the market is still growing, we have seen a real shift in terms of both performance and fund flows, and we expect this trend to continue. The number of funds being launched in this space is likely to continue as groups that don’t have a position or strategy covering ESG look to fill the gaps.”

The UK also saw ESG funds outperform their non-ESG peers. While the UK suffered an altogether tougher market, with the UK’s core All Companies and Equity Income sectors delivering an average loss of 9%, ESG funds outperformed with an average loss of 5.22%.

Premier Miton Ethical C was found to be the top performer with a 3.87% return, while Ninety One UK Sustainable Equity delivered a 0.81% return.

Lowcock explained: “The UK has been a much tougher market for all funds this year, and there remains a lack of options for ESG investors when it comes to the UK equity income sector, but even here ESG mandates rose above their non-ESG peers.”

Willis Owen’s analysis separated funds by looking at performance over the year and filtering funds with specific ESG mandates, including clean energy, ESG, ethical, sustainable and responsible funds.

According to Lowcock, there remains an issue of greenwashing which the industry needs to tackle, but by focusing on clearly labelled mandates, Willis Owen aims to provide guidance to retail investors struggling to determine which funds are investing wholeheartedly in ESG.

Lowcock added: “ESG is a fairly broad label and doesn’t need to mean ethical, for example, but could just mean the fund uses ESG in its process, which many do. That debate will rumble on for some time, but the real point is that an ESG bias really helped portfolios deliver stronger performance.

“This is in part due to the underperformance of some less friendly sectors such as oil and gas, financials and airlines, but the sustainable focus and governance elements certainly help with long-term investment performance, and that is a long-term driver of returns.”

Global – Top 10

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