Social distancing now, social investing forever

As the world fights the battle against COVID-19, one term that is making a buzz is Social Distancing.

Social distancing is indeed overwhelming for a generation that is constantly socialising either in person or through apps like WhatsApp, Instagram, Twitter and Facebook. In this lockdown period, some are getting bored, some are finding it a slow life, however, this downtime is the best opportunity to reflect and reset your everyday choices and lifestyle to be more sustainable.

There is tons of content on various streaming platforms to get over the social distancing blues. Gyms are providing live workout sessions and social media is flooded with articles for discussion and debate. At the end of the day, in order to feel human and humane, what we need the most is communication and socialising virtually has become the biggest alternative. Getting on a conference call with family or a video call with a group of friends to discuss sports, fashion, politics, general gossip, food recipes, coronavirus- relief donations and so on has now become a part of everyday routine.

With the extension of lockdown and slowing down of the economy, the restlessness about employment, how much to spend, how much to save and where to invest is being voiced in these group conference calls. The circumstances today are unique and the repercussions are uncertain. As an individual, as a family or even as a business, the choice of investing money needs to be made consciously so that the value of your hard earned money is preserved.

Is Social Investing that much needed big reset when it comes to our conscious investing choices?

We are forced to think and make necessary lifestyle changes for the good, your portfolio should also reflect your value system. A move away from a capitalist focusing on short term profits to one that cares for sustainability.

Socially Responsible Investing (SRI)

Social investing also known as socially responsible investing (SRI), is a choice that you can make to invest your money in a more sustainable and ethical manner.

In simple words, people are now making more mindful and responsible choices to have a sustainable life by eating organic, becoming vegan, choosing cruelty free products and so on.

Socially responsible investing is a chance of investing the money in a company or fund that is focused on both financial and qualitative returns in terms of social and environmental good.

When the grip of Coronavirus is reaffirming the phrase “Survival of the fittest”, it is time to ensure that the company/fund is not just financially fit but also passes the test of quality to survive, thrive and sustain during unprecedented and disturbing times.

Environmental Impact

While evaluating a company, consider the impact of business operations on the environment and the proactive measures taken by the company to reduce or compensate for the environmental impact.

For instance, the company heavily dependent on groundwater reserves for its operations and also practising rainwater harvesting is compensating for its overuse of natural resources.

Broadly speaking, COVID-19 is certainly an alarm for all of us to start caring about the environment and immediately stop abusing it, if we want to avoid big natural catastrophes in the future.

Social Impact

A company grows and flourishes with people. The employees, stakeholders and shareholders are critical for the success of a company. It’s important to conduct an in-depth research on the employee practises, health and safety policies, minority shareholder treatment and corporate social responsibility policy followed by the company. The true test of social impact can be measured through the quality of initiatives the company is taking. A company facing business discontinuity due to local protests or strikes or complaints related to harassment at the workplace is certainly failing on the social front.

Governance Impac

Only sound and good governed companies can possibly have the mindfulness and consciousness towards giving equal importance to qualitative factors like climate change, social harmony and importance of minority shareholders. Governance is the heart of the company. Businesses can fail or flourish based on the policies approved and implemented by the board of directors. It is essential to have independence in the board of directors for healthy and constructive discussions and decisions. The diversity in skill set among the board of directors ensures that the company is formulating policies in a holistic manner. It’s important to closely analyse the quality and the strength of the governance standards while evaluating a company. A company with an independent and diverse board is likely to protect the interest of minority shareholders and thus, retain and protect shareholder’s value.

Investing in the “New Normal”

It is an obvious choice for investors to invest in companies that focus on growing financially. In the current scenario, the ‘new normal’ is to identify and invest in the company that foresees the environmental and social risks and formulates sustainable practices to ensure business continuity.

It’s easier said than done. To check companies on the Environment, Social and Governance parameters requires an evaluation and comparison of more than 150 criteria that fall under each of these jurisdictions.

ESG funds to the rescue. A new breed of fund called ESG Funds or at times called socially responsible funds or sustainable funds help you to build a portfolio of companies through careful scrutiny and evaluation of these ESG criteria.

As such, the lockdown or slow life is an excellent time to get as much knowledge about Environment, Social and Governance (ESG) Funds as possible. Globally, the socially responsible investments grew to $30.7 billion in 2019 with an impressive growth rate of 34% in just two years. ESG Fund is typically an open ended equity fund that is predominantly focussed on investing in businesses that are making an impact on environmental and social aspects with a strong foundation of good and transparent governance.

Is Social Investing lucrative in volatile times?

Often there is doubt and criticism towards whether ESG Funds can deliver returns to satisfy investors or is it just investing for something good with abysmal returns. The current COVID-19 driven stock market crash is proving the critics wrong. According to Bloomberg analysis of 2,800+ ESG-themed funds¹, the ESG funds fell by average 12% as compared to 23% drop in S&P 500 Index. It seems that ESG factors have played their role in limiting the risk in ESG Fund portfolios. Morningstar survey² echoes the same conclusion that US ESG Funds are outperforming the conventional funds and are in the top quartile in terms of performance.

During unpredictable times, everyone naturally becomes extremely risk averse and hoards cash. However, once the economic revival begins, one can have an edge by knowing about avenues to invest more responsibly.

ESG can be the light at the end of the tunnel. Institutional investors, endowment funds, pension funds are already mandating for ESG integration in their investments. Millennials inheriting wealth want to invest in ESG funds and put their money in funds that reflect their belief and value system. Time has come to reset your investment and build a portfolio that’s win-win for all; good for the planet, good for the society and good for your profits. It’s time we embrace ESG investing.

So what are you waiting for? It’s time for today’s conference call with your near and dear ones. Talk to them about Social Investing and ESG. Make them feel positive about investing for their future by sharing, blogging and discussing about ESG.

Hope you take the COVID-19 mandate seriously, Stay Safe and Invest Responsibly!

¹ https://www.bloomberg.com/news/articles/2020-03-13/older-esg-funds-outperform-their-newer-rivals-in-market-tumult

² https://www.morningstar.com/articles/972475/sustainable-equity-funds-are-outperforming-in-bear-market

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The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.

Above article is authored by Quantum.

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