Coronavirus update 3rd April 2020
In our weekly update, we explore the importance of ethical and sustainable investment.
As the new norm for all of us sets in, it is hard not to gaze out of the window and dream of ‘the good times’. These good times were just a few weeks ago, yet it shows you just how much things have changed in such a short period.
The news of the death toll this week, and particularly yesterday1, was deeply saddening yet numbingly unsurprising, with many of the warnings given in the daily briefings predicting that the situation is likely to get worse before it gets better. No amount of mental preparation can ready you for the sheer scale of what is happening.
Global stock markets spent the week moving higher, then lower, and vice versa as they try and decipher the impact of numerous variables. NHS Nightingale – a 4,000-bed, 80 ward ‘pop-up’ hospital2 in the Excel centre – has gone from idea to near completion in almost 10 days. Economic figures, as well as predictions of how the recovery may take shape, have gone into overdrive. The truth is no one really knows. It is possible to model and hypothesise but as we keep reiterating, this is not the time to be making hasty decisions, it is the time to be calm and measured.
For many, this is the second or third week of isolation; changing and updating how we live our lives is now another item on the daily to-do list. Lessons are now taking place at the dining table, trips to the pub over video conference and the front room is now the local gym. In these crazy times, it is important to realise just how remarkable human beings are at adapting and changing when necessary. The only real constant in all of our lives at the moment is that of uncertainty and flux, and this is likely to be the case for some time.
There is a palpable sense of community and togetherness despite being more physically apart than ever. The collective social contract of staying at home to protect others is, so far, seeming to hold. Yet it is this community spirit and desire for better that is driving people to think how they live their lives; how they consume, what they consume and what impact they have on those around them, not to mention making a mental note of those businesses that are not holding up their end of the bargain. For many, changing the way that we live our lives in order to be more sustainable is no new thing. For others, the current situation is providing a stimulus and accelerating the process.
At Holden & Partners, this way of thinking has been at the foundations of our business from the very beginning, with ethical and sustainable business practices and investment service at the heart of what we do.
Sustainable investing or Environmental, Social and Governance (ESG) as it is known in the industry, has come of age. Once viewed as a fringe player in the investment world, the benefits of avoiding once profitable but socially and environmentally detrimental industries (such as tobacco and oil) are now very clear.
Research from several outlets, including Morningstar3, has shown that ESG funds have weathered the storm better than their non-ESG counterparts. Funds that track major global indices have outperformed across the board globally. This is down to the positioning of the funds; at present many of the ESG funds invest heavily in technology and health-care stocks with typically no holdings in fossil fuel companies. With people flocking to tech to fill the role of social in-person gatherings and the huge drop off in the use of fossil fuels with no one flying or driving4, it isn’t hard to see why these funds are outperforming.
Surveys have indicated that millennials5 are one of the driving forces behind investing for better, and $30 trillion of the world’s assets are now in ESG funds. In 2019, money that was moved into sustainable funds quadrupled to $20.6 billion compared to the previous year6. Of course, much of this growth was during the boom of the most recent bull market, where prices have risen, and many of these ESG funds have never faced a downturn like the one we are seeing currently. Nevertheless, the early signs are promising.
Advocates of ESG such as ourselves have long argued that screening for environmental sustainability, social responsibility and good corporate governance leads to investing in more stable businesses that have the potential to provide better returns in the long run.
The only true constant we face is change, and we at Holden & Partners want to be part of the change for the better.
As always we are here if you want to discuss anything with us.
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1 https://www.theguardian.com/world/2020/apr/02/uk-deadliest-coronavirus-day-569-deaths
5 https://www.msci.com/documents/10199/07e7a7d3-59c3-4d0b-b0b5-029e8fd3974b
6 https://www.cnbc.com/2020/01/14/esg-funds-see-record-inflows-in-2019.html