Skip to content
  • For Financial Professionals in the US Change
  • Contact Us
    • Subscriptions
      • Select Preferences
      • Log in
search bar
Janus Henderson Investors
  • Products
        • Investment Options

        • Mutual Funds
        • ETFs
        • Managed Accounts
        • Variable Insurance
        • Filter By

        • Equities
        • Fixed Income
        • Multi-Asset
        • View

        • Prices and Performance
        • Morningstar Fee Levels
        • Mutual Fund Distributions
        • Product Literature
        • View All Funds
  • Insights
        • Knowledge Shared

        • Explore our insights

        • Blog News Feed

        • Abandon Your Doubts
          Not Your Goals

          Uncertainty can cause investors to question their investment strategy. But with the right perspective, it’s possible to look past today’s uncertainty and stay focused on long-term objectives.

        • Learn More
        • Global Perspectives
          Recurring global market views and research
        • Portfolio Construction
          Actionable asset allocation insights from our strategists
        • For Your Practice and Your Clients
          Expertise on matters unique to your business and to your clients
        • Investment Viewpoints
          Updates and outlooks from our investment teams
        • Wealth Management & Retirement
          Unique wealth planning strategies and timely insights in the DC marketplace to stay ahead
        • View All Insights
        • Telescope Insights
        • Timely views on market events and the latest thinking from Janus Henderson.

        • View All Posts
  • Resources
        • Our Resources

        • Our Knowledge Labs Program

        • Choose Your Goals

        • Knowledge Labs
        • Webcast Series
        • Podcasts
        • Connect with Your Clients
        • Professional Development
          Resources to enhance your performance and grow your practice.
        • Wealth Management
          Discover wealth planning and tax strategies for your complete spectrum of clients.
        • Portfolio Construction and Strategy
          Form a partnership with Janus Henderson and gain access to analytical resources.
        • Defined Contribution
          Stay informed about the latest defined contribution strategies.
        • Client Acquisition
        • Client Loyalty
        • Team and Personal Effectiveness
        • Compliance and Regulatory
        • Portfolio Strategy
  • About Us
        • About Janus Henderson Investors

        • Our people

        • Environmental, Social and Governance (ESG)

        • Who We Are
        • Our Investment Capabilities
        • Connecting With Our Clients
        • We provide access to some of the industry’s most talented and innovative thinkers.


          Meet our teams
        • Find out how environmental, social and governance (ESG) considerations are embedded within our organization and investment principles.

          Learn more
{{banner.link_text}}
For Financial Professionals in the US

Knowledge. Shared Blog

June 22, 2020

Quick Views Environmental Social Governance (ESG)

Sustainable Investing Shines During Market Gloom

  • Hamish Chamberlayne, CFA
    Hamish Chamberlayne, CFA
    Head of Global Sustainable Equities | Portfolio Manager

During the first quarter of 2020 – when global markets contracted sharply – equity funds with sustainable investing mandates tended to outperform conventional funds, according to research from Morningstar. Hamish Chamberlayne, Head of Global Sustainable Equity, discusses the findings and why he believes sustainable investing could deliver durable growth for years to come.

Key Takeaways

  • According to Morningstar, 70% of sustainable equity funds – which incorporate environmental, social and governance factors (ESG) into their investment mandates – finished in the top half of their respective Morningstar categories during the first quarter of 2020.
  • Although sustainable funds still suffered losses during the period, their focus on investing in companies mindful of ESG issues was an advantage, as these firms exhibited more resilience during the crisis.
  • In our view, the pandemic has only accelerated trends that favor companies working to develop a more sustainable global economy, with long-lasting investment implications.

If sustainable investing did not garner serious consideration before this year’s market meltdown, it likely will now. According to Morningstar, 70% of sustainable equity funds – which incorporate environmental, social and governance factors (ESG) in their investment mandates – finished in the top half of their respective Morningstar categories during the first quarter of 2020, when global markets fell sharply on worries about the COVID-19 coronavirus. The funds still experienced losses, but not as much as their conventional peers. What’s more, 44% of sustainable equity funds ranked in the top quartile during that period, while just 11% finished in the bottom quartile.1

Sustainable: A New Definition of Quality

Sustainable investing has long satisfied the desire to do good while investing. But increasingly, the approach is proving it can deliver attractive investment returns, too – a point that may become only more evident in years to come as the world inevitably transitions to a sustainable economy.

Some three decades ago, the United Nations defined sustainable development as that which meets the needs of the present without compromising the ability of future generations to meet their own needs. In our view, four environmental and social megatrends challenge that goal: climate change, natural resource constraints, population growth and aging populations. We believe each megatrend is putting the global economy under enormous pressure, with far-reaching investment implications.

To that end, we think companies on the right side of these challenges – firms aligned with the development of a more sustainable global economy – could be best positioned to benefit from this disruption. And COVID-19 is helping underscore that point. Looking specifically at the performance of sustainable index funds versus conventional equity market benchmarks, Morningstar found that one reason for these funds’ outperformance was their tendency to be underweight energy stocks, which on average saw the sharpest declines of any sector during the period. An overweight to the technology sector also made a small contribution to outperformance.

The biggest differentiator, though, was the funds’ investment in companies with ESG credentials: firms that are well informed about environmental challenges, prioritize stakeholders and govern themselves in ethical ways, all of which appears to have contributed to the companies’ resilience. “They are the quality companies of the 21st Century, and quality companies tend to hold up better than their lower-quality counterparts in difficult markets,” said Jon Hale, head of sustainability research at Morningstar, in a recent article.2

One way we think investors can determine quality using an ESG lens is to ask if a business is likely to contribute to the development of a sustainable global economy. Clean energy, water management, sustainable property, knowledge and technology, and quality of life – firms focused on these and similar areas are more likely to have durable and compounding revenue growth over the coming decade, in our opinion. Conversely, companies that negatively impact the environment or society should be avoided. In our view, firms inflicting harm are much more likely to experience discontinuity risk by virtue of increasing regulatory scrutiny and societal pressures.

Performance Diverges

That risk came into sharp focus earlier this year. Demand for oil, for example, plummeted as COVID-19 spread and the global economy stalled. At the same time, an oil price war between Russia and Saudi Arabia threatened to push up supply (and caused crude prices to sink). But a joint report by the International Energy Agency and the Centre for Climate Finance & Investment at Imperial College Business School found that a portfolio of renewable energy stocks gained 2.2% from January through April this year, compared a total return of -40.5% for a portfolio of fossil fuel companies.3 In other words, renewables offered greater resilience during the market upheaval. Going forward, we believe oil’s price volatility could be a headwind for future investment in fossil fuels while more capital is directed at renewable projects.

Digitalization has also accelerated, as we recently discussed in our article Sustainability and digitalisation: speeding the transition to a low carbon world. Before the pandemic, advanced computing power and lower costs were allowing for industrial, consumer and technological economies to merge. The pandemic has only fast-tracked this trend, with what we think could be lasting consequences – and which, in our opinion, is likely to favor companies prepared to compete in a digital and sustainably driven world.

Equity Perspectives

Quarterly insight from our Equity team to help clients navigate
the markets and opportunities ahead.

Read Now

1Morningstar, data as of 3/31/20. Based on returns for 206 sustainable equity open-end and exchange-traded funds available in the United States.

2Hale, Jon. “Sustainable Funds Weather the First Quarter Better Than Conventional Funds.” Morningstar, April 3, 2020.

3“Energy Investing: Exploring Risk and Return in the Capital Markets,” a Joint Report by the International Energy Agency and the Centre for Climate Finance & Investment, June 2020. The fossil fuel and renewable energy portfolios are made up of Bloomberg Industry Classification Systems sub-sectors, as well as green utilities and yieldco firms. Companies also had a market capitalization of $200 million or more as of December 31, 2019, and were domiciled in either the U.S., UK, Germany or France.

Knowledge. Shared
Blog

Back to all Blog Posts

Subscribe for relevant insights delivered straight to your inbox

I want to subscribe
  • United States
  • Financial Professionals
  • Individual Investor
  • Institutional
  • US Offshore
  • Investor Relations
  • Media Center
  • Careers
  • Foundation
  • Contact Us
  • Privacy
  • Legal
  • Terms of Use
  • Facebook
  • Twitter
  • LinkedIn
  • YouTube
  • Podcast
The opinions and views expressed are as of the date published and are subject to change. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. No forecasts can be guaranteed. Opinions and examples are meant as an illustration of broader themes, are not an indication of trading intent and may not reflect the views of others in the organization. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. Janus Henderson Group plc through its subsidiaries may manage investment products with a financial interest in securities mentioned herein and any comments should not be construed as a reflection on the past or future profitability. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.
Janus Henderson Group plc ©

C-0620-31073 06-30-21

Close Notification
You are now leaving janushenderson.com

You are now leaving our site and entering a website not operated by or affiliated with Janus Henderson Investors. While we aim to point you to useful external websites, we cannot be responsible for their content, opinions, advice or accuracy, even if you utilise the services on the linked site to invest in our products.

The protection of your personal information on other websites is not governed by Janus Henderson Investors privacy policy and Janus Henderson Investors cannot be responsible for the privacy policies utilised on such third party sites, nor for the implementation of such policies by those third parties.

You should review the Terms and Conditions of third party websites and contact the operators of such sites if you have any queries.

You are now leaving Janus Henderson's website and will be redirected to the website of the Securities and Exchange Commission (the "SEC"). Money market funds are required to provide the SEC with a monthly electronic filing of more detailed portfolio holdings information on Form N-MFP.

Janus Henderson is not responsible for the content, accuracy or timeliness and does not make any warranties, express or implied, with regard to the information obtained from other websites. This link should not be construed as either a recommendation or offer to by or sell any securities.

Region

Country

Language

What type of investor are you?