Despite the fear, uncertainty, and anxiety of our present moment, there have been innumerable lights in the darkness - moments when groups of strangers have come together to look out for the needs of those who have been more seriously affected by the pandemic. Today, there is a strong national feeling that in times of national crisis, it’s the people who will ultimately rise to the occasion and take care of one another.
In the financial sector, ESG investments have always been the clearest manifestation of an investor’s goodwill towards the environment, the nation, and fellow citizens. And in recent weeks, ESG investments - and COVID-19 bonds in particular - have become an especially potent vehicle of social activism and sustainable investment. In this article, we’ll introduce you to the basic tenets of ESG investing and how it can be leveraged to help aid the global fight against COVID-19.
What Is ESG Investing?
ESG investing refers to any investment effort that’s aimed at achieving financial returns as well as furthering some sort of environmental, social, or governmental goal. Put another way, it’s an investment practice that prioritizes ecological conservation, human rights, and political activism over mere profit.
ESG investing trends arise and fall alongside ever-changing socioeconomic conditions. Investment efforts aimed at influencing environmental policy, for example, gained popularity as the broader environmental movement started to gain momentum in the 1960’s. And as the very real threat of global warming continued to assert itself in the public consciousness, green investment opportunities have only continued to expand and diversify.
In this moment, however, the COVID-19 pandemic poses the single most immediate threat to humanity as well as to the security of the world economy. In light of that, many ESG investors have begun to focus their attention entirely on supporting financial aid efforts and scientific research to help “flatten the curve” of the pandemic.
What Are COVID-19 Bonds, and How Do They Work?
During World War 2, the United States government issued immense quantities of “war bonds” to mobilize the population and fund the war effort. Today, public and private entities around the world are issuing COVID-19 bonds in a worldwide effort to combat the spread of the novel coronavirus.
Simply put, a bond is a fixed-income loan that an investor makes to a borrower (in most cases a private company, corporation, or government entity). Bonds typically come with an “end date” by which the loan principal must be repaid in full to the investor. They also come with terms for variable or fixed interest payments that are determined by the borrower at the time of the bond’s original sale.
Bonds are highly reliable and low-risk investments that are very likely to continue to play a prominent role in the ESG investing community. COVID-19 bonds, for their part, can potentially lead to both high returns and contribute to the global effort to fight the virus and protect at-risk communities.
ESG Investing: A Resilient Investment Strategy During Uncertain Times
Recent research has shown that “ESG-tilted investment portfolios have outperformed non-sustainable counterparts during this year’s coronavirus-fuelled downturn.” In plain English, that means that investments aimed at influencing environmental policy, sustainability, and political activism have remained stronger and more resilient throughout the COVID-19 crisis than non-ESG investments. As a result, and in an effort to safeguard their financial security, growing numbers of investors have been adding ESG investments to their portfolio during the pandemic.
It remains to be seen what the long-term economic repercussions of this pandemic will be. But what does seem certain at this point is that ESG investments, and COVID-19 bonds especially, will continue to play an increasingly vital role on Wall Street as the crisis continues.
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