ImpactAlpha, Apr. 22 – It’s not that the ‘E’ in ESG investing is taking a back seat. “It’s more that the ’S’ is climbing into the front seat,” as the COVID crisis has brought social issues to the forefront, says Goldman Sachs’ John Goldstein.
Corporates, asset owners and asset managers are wrestling with questions about workforce, health and other societal issues, Goldstein said on a media call discussing Goldman’s report, Sustainable Finance: The imperative and the opportunity.
The financial giant last year pledged to move $750 billion over the next decade to the climate transition and inclusive growth (see, and listen in to, “Big investors press asset managers to integrate ‘ESG’ and impact across portfolios”).
“If there were ever a moment to highlight the importance of non-financial factors in understanding, evaluating and navigating complex markets and economies,” says Goldstein, this is it.
Social bonds
Before green and sustainability bonds took off, Goldman Sachs and Deutsche Bank in 2006 lead-managed the issuance of a $1 billion social bond by the International Finance Facility for Immunisation to provide a steady stream of funds for immunization programs in 70 developing countries.
Since COVID struck, Goldman has led the issuance of more than $18 billion in “COVID relief bonds.” Proceeds help countries and businesses respond to the pandemic. “What we’ve seen in the course of the March issuances is that social bonds have really taken off, and have actually got an equal, if not more, weighting in the bond issuance market,” said Goldman’s Kyung-Ah Park.
Goldman underwrote Indonesia’s 50-year dollar bond to fight the pandemic, the African Development Bank’s $3 billion Fight COVID-19 Social Bond and the Inter-American Development Bank’s $2 billion Sustainable Development Bond. It also led a €7.5 billion issuance from the Republic of Austria, which will support a €4 billion COVID-19 emergency fund and a €1.5 billion issuance from the French Development Agency.
Business case
Goldman repositioned a money market fund in 2018 to prioritize diverse broker-dealers. Since then, the firm has used diverse dealers to buy half of its assets.
Last proxy season, Goldman voted against 312 directors at 214 companies for lacking women on the board. The firm will only take companies with at least one diverse board director public (the requirement rises to two next year). Public offerings of U.S. companies with at least one female director have significantly outperformed companies with no female directors.
“This is fundamentally about performance,” said Goldman’s Kara Mangone.
Engaged clients
In terms of performance and flows, sustainable investing has performed in the downturn (see, “Sustainable investments are growing, and outperforming, in a volatile market”).
Goldman Sachs says client engagement around sustainable finance increased in March over January or February. Clients are engaged and strategic, says Goldstein, “particularly at the top of the house.”
