The Recent Performance of ESG Investing, the COVID-19 Catalyst and the Biden Effect

Abstract

The purpose of this paper is to appraise recent ESG trends in global equity markets. It contributes to a broader research project started at Amundi in 2014 on the relevance of ESG. Since the latest update in 2019, we have lived through a global pandemic that profoundly reshaped the global economy and society, and an eventful change of leadership in the United States. The aim of this paper is to analyze the changes in ESG trends since our latest update in June 2019. We work on the North American and EMU universes and, for the first time in our research series, also shed the light on Emerging Asia market. We identify that a presumed “Biden effect”, assumed to be supportive for ESG performance in North America, was actually anticipated earlier by investors and rooted in the fertile ground of rising ESG awareness. This being said, Joe Biden’s election may have fueled some momentum for the Emissions & Energy component of the Environmental pillar on both sides of the Atlantic at the end of 2020. In addition, we previously showed that the Social pillar in North America had already caught ESG investors’ attention following the market stress caused by the COVID-19 outbreak. Our results also demonstrate the Social pillar’s strong performance in North America since the end of 2020. Additionally, we show that companies with better Governance have been the most resilient in terms of performance during the pandemic’s troublesome market environment, independently of the region considered. In North America, employing credit market data, we demonstrate that these firms also benefited from a lower corporate cost of debt. In Emerging Asia, we have witnessed strong ESG performance since the end of 2020. Finally, employing a predictive non-linear framework, our results support ESG as a serious candidate risk factor not only in the EMU, but also in North America since 2019.

Keywords: ESG, environmental, social, governance, asset pricing, active management, factor investing, COVID-19, feature extraction, machine learning

JEL Classification: G10, M14, C38