As markets continue to roil, investments that take into account environmental, social and governance issues are helping to dampen investment risk, said Kate Starr, chief investment officer of Flat World Partners, an advisory and asset management firm focused on sustainable investments.

“ESG investments are always a mitigating factor against risk. In recent weeks the sector has only dropped 12% to 13% across asset classes compared to 30% drops in the overall market,” Starr said in an interview with Financial Advisor magazine. Flat World Partners works with advisors to help design custom ESG solutions that match their clients’ investment goals and values.

ESG investments have fared better in part because of a lower exposure to energy and higher exposure to technology and health care.

“What will happen to health-care investments remains to be seen,” Starr said. “If the health-care system proves it can handle the current crisis, it will be a boon to the industry, but if it gets crushed it will be a problem for investors.”

Venture capital funds are starting to focus on such things as streaming media, remote working platforms and innovations that save carbon. Sectors aimed at helping with family care and care giving are skyrocketing because people will be staying home more in the near future, she added.

Much of this will be seen in the next couple of quarters because effects will take time to work through the system, Starr said.

In the longer-term, ESG investments should be at the forefront of a recovery because the companies that have more transparency for operations and supply chains will have more resilient businesses.

“Even before Covid-19, companies that had better transparency had fewer ‘gotcha’ moments in their operations,” making them more stable investments, Starr said, adding that companies with more equitable operations and more stable foundations will attract ESG investors and will come out of any recession in better shape.

Starr pointed to the 2008 mortgage crisis as an example of what could happen in the future. Loan companies that used valid standards and properly vetted borrowers were the ones that survived the mortgage crash.

“The investment world has been getting better at judging how to create real value and sustainable companies,” she added.