The Surprising Profit Boost from Social Causes

Firms and funds focused on social impact and sustainability are outperforming amid the pandemic. “The feeling is our world is more connected than ever,” says one expert.

If there were any doubts about the sustainability of sustainability, social impact, diversity and inclusion, and other purpose-driven commitments and investments, they may have been put to rest during the coronavirus. 

When the pandemic first hit, the fear was that corporations and investment funds would use the financial damage as an excuse to pull back on their social-impact pledges. Some airlines, for instance, immediately began asking for reductions in carbon-emissions standards. But the outbreak is actually having the reverse effect, strengthening impact investor solidarity and reinforcing leadership’s commitment to purpose, says Kate Shattuck, a senior client partner and coleader of Korn Ferry’s Impact Investing practice. “The pandemic has increased the feeling that our world is more connected than ever,” she says. 

Nowhere is that feeling more evident than in the performance of environmental, social, and governance-focused (ESG) investment funds. ESG funds collected a record $10.5 billion in new investments during the first quarter, according to data from the research firm Morningstar. ESG funds are outperforming the S&P 500 this year as well, data from S&P Global Market Intelligence shows, with the top-performing ESG fund gaining 3.4% through May 15 compared with an 11.4% decline in the S&P 500. 

“The ESG movement in the industry is really all about the sustainability of business models,” says Chad Astmann, a senior client partner and co-head of Korn Ferry’s Global Asset Management practice. He cites as an example how organizations with sustainable supply chains have been able to manage social and environmental risks posed by the pandemic better than others due to more diversified sourcing, and less illness and contamination shutting down plants and factories. Similarly, with oil prices fluctuating wildly, at one point falling into negative territory, natural gas and energy stocks have been hit hard, while those of alternative and renewable energy companies have held up well. 

There are, of course, obstacles ahead for impact investors and leaders of purpose-driven companies. Continued market volatility, for instance, could cause a pullback in investments in ESG-focused funds and companies. For start-ups and other organizations that are fundraising, connecting with investors is difficult due to social distancing and shelter-in-place restrictions. And in some cases, investors are penalizing large public companies in the short term for higher costs related to increased pay and benefits for workers. 

Despite these hurdles, Gloria Mirrione, sector leader for Asset Management and Impact Investing with Korn Ferry, says the pandemic is “leading investors of all types to accelerate the decision to align their personal values directly where they place investable dollars.” Put another way, they are putting their money where their values are. That’s great news for purpose-driven companies with strategic, long-term-thinking leaders who are winning over consumers, employees, and investors by marrying empathy with performance during the pandemic. 

Or, as Astmann puts it, “Greater mindfulness of all stakeholders tends to produce long-term, sustainable growth that holds up better in economic crisis scenarios.”