Source: Money Marketing
We should feel emboldened by our collective efforts in trying to find a cure for Covid-19
Interest in sustainable investing and environmental, social and governance issues has never been greater, with the Covid-19 pandemic adding to existing concerns, such as the climate crisis and the dumping of plastic in the sea.
Whether it is Sir David Attenborough’s TV documentaries, protests by Extinction Rebellion or policy recommendations from learned bodies such as the UK Committee on Climate Change, it is impossible not to be aware of the urgency of action we need to take to tackle the crises. This includes reaching targets such as the reduction of greenhouse gas emissions to net zero by 2050.
Everyone’s investment decisions can play a key role achieving such objectives and, therefore, an increasing number of people care about how they make their money, and how much they make.
We expect the rise in demand for sustainable investing to continue and, in turn, lead to a further proliferation of ESG funds. Research shows that 73 per cent of consumers say sustainability is a important part of their everyday life, but just 43 per cent of these people invest sustainably. And of those who do not invest sustainably, 63 per cent are aware of sustainable investment, showing the potential for growth.
This is supported by research we carried out with wealth managers and financial advisers. This reveals that 78 per cent of them expect their clients to invest more in sustainable investments over the next 12 months.
The top reason for consumers not investing sustainably is the belief that it could hinder performance (cited by 32 per cent). The next most popular reasons are lack of knowledge/need to do research (12 per cent) and an intention to look into it in the future (9 per cent).
To counter the most frequently given reason, the performance of sustainable and ESG funds has in fact shown that this approach can deliver superior returns compared to conventional funds over different time periods and through different market environments. This is not a short-term phenomenon and the superior performance is one of the key drivers behind the increased demand for sustainable funds.
We are sometimes asked whether sustainable investment is currently experiencing a bubble because of the increased money flowing into these funds and the strong performance. Is there a risk that with ESG becoming more prevalent, it is propping up the share prices of some companies?
The first thing to say in response is that sustainable investment is still a small part of the overall investment market. Secondly, as a fund manager, it is important to have discipline around valuations and to make sure we are investing in stocks that will adequately reward us over the next few years and benefit from the long-term trends we have identified through our investment process.
The Covid-19 crisis will support and accelerate many trends and themes integral to sustainability. Our sustainable investment process begins with 20 themes, all focused on the shift towards a more sustainable economy. We focus on areas of structural growth and investing in companies on the right side of this transition.
Our ‘Connecting people’ theme, for example, looks at how we can be better connected through the infrastructure that helps us communicate and the service providers we use to do this. Increased communication is important for the development of a sustainable economy and global cohesion, but the challenge is to decouple this exponential growth from its environmental impacts and this will largely be through more efficient data centres.
Digital technology’s share of greenhouse gas emissions is clearly set to rise, given the millions of people stuck indoors over the past six months, either working or streaming data. We therefore see considerable resource benefits coming from the trend towards outsourced storage and processing.
Moving to themes focused on improving quality of life — ‘Enabling innovation in healthcare’ and ‘Providing affordable healthcare’ — these have benefited from the broad focus on who can come up with an effective treatment for Covid-19.
We continue to believe sustainable companies have better growth prospects and are more resilient than businesses not prioritising ESG, and these advantages remain underappreciated by the wider market. We cannot afford to go back to ‘normal’ when this crisis is over.
The world should feel emboldened by our collective efforts in response to the virus and go further to make our economy cleaner, healthier, safer and fairer.