SUSTAINABLE INDICES: BUILT FOR ALL WEATHER?


iShares 28/Mar/2021

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KEEP IT BRIEF

  • The shift to sustainable is powering ahead in 2021, with flows on an even steeper trajectory compared to 2020’s record inflows.
  • Using the past year as a case study, we look at sentiment towards ESG exposures in varying market scenarios: the Covid market downturn (February-March 2020), the defensive-led recovery (April-November 2020) and the value-led recovery (December 2020-January 2021).
  • We consider the existence of a residual ‘ESG effect’ across sustainable indices.

KEY THEMES



Covid-19 has acted as a powerful accelerator of structural trends, including an increased focus on sustainability, and heightened attention on underappreciated sustainability-related risks and supply chain resilience. Add in the immense political, regulatory and societal focus on sustainability across developed markets in particular, and the green transition looks set to continue its upward trajectory.



It has been widely reported that ESG indices held up relatively well compared to their parent benchmarks during the Covid-related market volatility in March 2020. The relative resilience of sustainable exposures during this period led to a belief that ESG exposures are best-suited as a source of ballast during market downturns. Our research, however, suggests they may have offered more than just downside management over the past year.



We dig under the hood to dissect the drivers behind sustainable indices, from factor, sector and country exposures through to a residual ‘ESG effect’.


SUSTAINABLE INDICES: BUILT FOR ALL WEATHER?

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