Signs ESG might be facing headwinds

Investor confidence in the principles of ESG investing appeared to wane in 2019. Recent survey data show that a greater portion of respondents predict that their ESG investments will underperform their non-ESG portfolios. The survey, conducted by RBC Global Asset Management and which polled almost 800 investment professionals across a diverse group of industry participants, gave further insights into a possible growing skepticism about ESG.

Additionally, there was an uptick in respondents saying they don't look at ESG factors in their decision-making process and fewer said ESG was mandated down from boards or stakeholders. However, a greater percentage of respondents acknowledged that ESG might provide better returns with less risk.

Investment guidelines that mandate ESG considerations were the chief driver among those who incorporate it into their process, particularly in Canada, Europe and the U.K. Fewer U.S. respondents said ESG principles were considered part of their fiduciary duty compared with investors in Europe and the U.K.

Since the end of 2017, MSCI's primary global ESG index, the MSCI World ESG Leaders index, has outperformed its broad market counterpart, the MSCI World index, but only recently. Over the almost 22-month period ended Thursday the ESG index gained 3.4% compared with the 2.5% return of the broad global index on an annualized basis. ESG's downside protection qualities have shown their worth in 2019, with the ESG index outperforming in down months.