BlackRock Inc. added its contribution to a growing body of research showing that ESG portfolios -- those that consider environmental, social and governance issues alongside regular financial considerations -- outperformed traditional market benchmarks in the recent market downturn.
The New York-based firm, which oversees about $6.5 trillion of assets, said in a research note Monday that 88% of sustainable indexes did better than their non-sustainable counterparts in the first four months of 2020. That comes after those same 32 indexes, which BlackRock says are widely used and represent the global market, notched superior performance to their traditional counterparts during declines in 2015-2016 and 2018.
The rapid growth of ESG funds over the past five years --more than $30 trillion of assets are now managed using a broad definition of the approach -- coincided with a period of market calm, causing some to question the resiliency of the strategies and convictions of their managers during a downturn. Asset managers that have established ESG divisions, including Allianz Global Investors and Invesco, have been keen to demonstrate how well sustainable portfolios are weathering the storm.
BlackRock also said it found open-ended funds that rank in the top 10% of Morningstar’s sustainability ratings significantly outperformed the bottom 10%. On average, the most sustainable funds tended to rank in the top half of their peers for financial returns in the first quarter, BlackRock said.
While some have suggested the strong comparative performance of ESG funds is due to the fact that most underweight energy companies, which have been crushed by cratering oil prices, slumping energy values explains “only a fraction of the outperformance,” BlackRock said.
