One of the many upheavals caused by the COVID-19 crisis has been some reordering of environmental, social and governance priorities for institutional investors.
While climate change and other environmental issues "were almost synonymous with ESG, the pandemic forced us to shift, and forced owners of capital to think about the other letters in ESG," said Nathan S. Shetty, Chicago-based head of multiasset portfolio management for Nuveen LLC, the money management arm of TIAA-CREF.
The global health crisis plus renewed attention on racial justice issues has spurred a closer look at corporate practices. "The pandemic has taught us that if businesses are to defend against future shocks, protect workers and ultimately support long-term growth, the social element within ESG should be considered just as critical as environmental and governance factors," said Naim Abou-Jaoude, London-based CEO of sustainable investing manager Candriam Investors Group and chairman of New York Life Investment Management International.
To Illinois Treasurer Michael W. Frerichs, the catalyst behind the novel Illinois Sustainable Investing Act requiring public funds to consider sustainability factors in investment decisions, "COVID is the big game changer here. We engage a lot more on human capital issues," he said.
"This just reaffirms that the nature of companies has changed. The vast majority of the Dow today is built on brand or reputation, and these are things that matter" to investors and others, Mr. Frerichs said.
For the $54.8 billion Maryland State Retirement & Pension System, Baltimore, climate change and diversity are two aspects of ESG that deserve special attention, given the system's mission to support public employees. "Getting diversity right can make us better at what we do," said Chief Investment Officer Andrew C. Palmer. Efforts to get there include evaluating their internal hiring practices and asking more questions of external managers — practices endorsed by many other asset owners.