The long-running pandemic has thrown much of the global economy off-kilter in the last two years, but some sectors have nonetheless thrived – ESG among them. Capital linked to FTSE Russell’s sustainable Investment indexes, for example, has grown to more than $167 billion, according to the company’s year-end insight from Arne Staal, the CEO of FTSE Russell.
The year 2021 “will be remembered as the year that climate-themed investing went truly mainstream,” Staal said. “We saw billions flow into climate-themed strategies in equity and fixed income markets to adjust for climate risks and opportunities.”
A recent study sponsored by FTSE Russell, “An ESG Analysis of the COVID-19 Crisis,” took a look at the same topic, but from a different vantage point. It investigated possible links between ESG and responses to the pandemic, and asked if ESG’s resilience could be one of the keys to managing COVID’s many challenges.
In an interview with John Lothian News, the study’s author, Julien Moussavi, senior research lead in Sovereign ESG at FTSE Russell, said his focus in the study was primarily on ESG investment performance, testing the idea that gross domestic product per capita could be linked to pandemic preparedness and COVID-19 management.
Using an econometric framework that was applied notably to economies included in the FTSE World Government Bond Index, the research scored the relationship between social performance and political effectiveness for each developed or emerging country studied, as well as the mortality rate resulting from the COVID-19 pandemic.
Moussavi acknowledged that the 41 economies chosen in the ESG analysis of performance were quite homogeneous, excluding countries that had “zero COVID strategies” in the APAC regions as well as the Middle East and Africa mainly due to a lack of data homogeneity. His research used a proprietary model called ESG Factor-IN that measures pure ESG performance for almost all the countries in the world.
“We should have made two groups,” Moussavi said, but by broadening the scope, “the second group would have been too small.”
Addressing that point, the report on the ESG analysis of the COVID-19 crisis also noted that “the economies that have paid the highest price for the pandemic are predominantly emerging markets and developing economies.”
The aim of the analysis, it noted, was to test the assumption that social and governance performance (the S and G of ESG) would have a significant effect on the number of cases and deaths due to the pandemic. The components of the model’s social outputs included economic inequality, employment and education, for example. Governance outputs included the fight against corruption, democratic life and political stability.
Indeed, the researchers found the most important correlations between the number of deaths per million and various ESG scores in their model were social performance and political effectiveness.
But what does this step-by-step economic investigation have to do with ESG investment?
“Investing in ESG themes has overarching benefits, both for economies and investors,” the analysis stated. “While it results in more preparedness and agility when addressing unpredictable events for economies, good ESG performance also provides security, stability and lower risk for investors.”