Zedra Funds see strong demand for ESG focused funds and company structures as a future trend

Pandemics have unexpected impacts upon markets and the Covid-19 outbreak is no exception. It is rapidly leading to a new way of business thinking which has manifested itself all across Europe and the world. 

That new trend is a heightened sense of concern for others, for example, key workers. Alongside this is a tangible new drive towards people wanting to “do the right thing” more often. 

As a result, ZEDRA, a specialist in active wealth, and corporate and fund administration, says it is seeing rising demand for funds and company structures with a stronger emphasis on their environmental, social and governance (ESG) credentials.

At the same time, governments are acting in the background – when Air France was rescued by the French State recently, one of the little quoted conditions was that it gave up competing with more environmentally friendly SNCF trains on some domestic routes.

While business have struggled to hold onto their workforce, business owners and their families, who have always been focused on ESG criteria are now increasingly looking at ways to support their employees and the communities in which they are present.

Joanna Bodell, Managing Director, ZEDRA Isle of Man explains the new trend: ‘Now, more than ever, social responsibility is a key consideration for business. We have watched as our clients look to invest in and run businesses supported by ever stronger ESG practices for some time now. This is not a short term trend, rather we expect that the focus on ESG will transcend generations.’

On a more specific level, family businesses are increasingly focussed on embracing governance factors as part of more sustainable business models, and the result is a more frank and open discussion about complex “good business “themes, both by younger and older members of the family. ‘Gender balance on boards, having proper conflict resolution processes in place and striving for real board independence are now common themes,’ adds Bodell.

Zedra sees this trend replicating itself within family offices too, which are now more likely to think about ESG in the context of their investment strategy, philanthropy and their own operations.

Meanwhile, in the funds sector, while capital markets have seen extensive turbulence over the past couple of months, fund managers have tried to ride out this volatility and simultaneously identify good share valuations precipitated by the market dislocation.

‘A reoccurring theme has been that the companies that have consistently focused on sustainability and ESG themes are now emerging as some of today’s strongest players, making them increasingly attractive for the fund managers and investors we support,’ says Mark Cleary, Director, ZEDRA Fund Services Jersey.

Zedra believes that ESG focused operations are intrinsically better positioned to react to crisis and change, as by definition the ESG message is also one of change.

‘Companies with a strong ESG focus have shown their worth in the face of challenging markets. In turn, this has put them firmly on the map of fund managers and investors. Increasingly, I believe we will soon see a shift, such that investors and fund managers will look to companies who emphasise ESG factors alongside other standard valuation tools and metrics as the norm, rather than as a specific investment strategy,’ adds Mark.

A strong ESG focus is often also synonymous with good governance. ‘Governance is always important for our corporate clients, and it’s seen as a fundamental element in the building of a sustainable business that can endure over the long-term,’ says Frank Walenta, Commercial Director, Luxembourg. “Increasingly, clients require us to demonstrate that we understand and can work alongside their ESG policies as a precondition to engaging us. Typically, we’re seeing that clients are looking to us as a service provider to help them build new ESC focused entities, to allow them to embrace this new business direction,” adds Walenta.

The Coronavirus has shown the importance of strong corporate entities and highlighted what companies may need to do to thrive and prosper in the future. The crisis will undoubtedly lead to many organisations with weak governance, poor leadership and underdeveloped environmental and social policies going to the wall, but if this leads to a new wave of organisations with a firmer grip on an ESC philosophy, there could yet be a silver lining.