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ESG investments: sustainability and crisis protection
ESG investments: sustainability and crisis protection

ESG funds have survived the massive price falls in the Corona crisis better, comparatively better. There is no guarantee of this, but there are several indications that sustainable investments are also more crisis-proof and resilient.

ESG investments: sustainability and crisis protection
ESG investments: sustainability and crisis protection

The stock market quake at the beginning of the Corona crisis was tremendously shaking the financial markets around the globe. In March 2020, the MSCI World Index (XC0009692739) fell 14.5 percent. That is definitely a drastic loss, because the index published by the US financial services provider MSCI is one of the most important indices in the world. It covers the price development of around 1,600 shares from 23 industrialized countries and around 85 percent of the free float market capitalization in each of the countries with the largest stock corporations.

The majority of ESG funds, on the other hand, were able to hold their own in a comparatively better way. After all, 62 percent of ESG large-cap funds, that is, funds in which large stock corporations are listed - cap stands for "capitalization" - performed better than the index over time. The daily growth rate of ESG funds was 4.6 times higher than that of conventional funds.

A similar phenomenon emerged years earlier during the subprime crisis, albeit to a somewhat lesser extent. At that time, the average growth rate of ESG funds was 1.7 times higher than that of conventional funds.

Attempts to explain

Although from the observed developments it cannot be said that ESG investments are generally more robust, there are some indications that speak for it.

One point that speaks in favor of outperformance during the crisis is that ESG funds are investing above average in new technologies or in healthcare - sectors that were less hard hit by the restrictions during the pandemic or have even benefited from them. Sustainable equity funds are also often positioned rather defensively, i.e. invest in companies that generate relatively stable income even in times of crisis.

Another point is that ESG investors apparently tend to think more long-term and are also more loyal, i.e. stick to their investments even during the crisis months, and finally there is the expectation that investments in climate protection will also prove to have a promising future. And finally, in the pandemic, the "S" and "G" in ESG have gained in importance - corporate social responsibility. There is a lot that suggests that companies that commit themselves to ESG guidelines are also a corresponding safety buffer in their depot.

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