Sustainable investing in a post-coronavirus world

Written by John Fleetwood on 17th May 2020

This article is an extract from the latest Good Investment Review, from 3D Investing and Good With Money, free to download here

What might we learn from the current crisis in respect to sustainable investing?

Firstly, it’s served as a reminder that we are not masters of the universe. Though we like to think we are in control, we’re not – we’ve become very good at limiting the impact of existential threats in the developed world, but we haven’t removed them entirely.

Poor people in more hostile environments are already aware of this, but the crisis has been a big wake-up call to those of us that have been largely insulated from such things.

Furthermore, we’ve been exposed to the downside of globalisation and just-in-time manufacturing. This has brought great benefits, but increases our vulnerability to shocks to one part of the system as we are reliant on global supply chains for some of the basics of life.

It’s also been a reminder of just how much we are connected and reliant on the health of the planet, not just our small bit of it. As we know, the virus is thought to have originated in animals, and according to the Institut Pasteur, 75% of the emerging infectious diseases that have affected humans over the last three decades are known to have a zoonotic (harmful germs spread from animals to people) origin.

The corollary of this is that disease is also an environmental issue. An article in The New York Times said: “We cut the trees; we kill the animals or cage them and send them to markets. We disrupt ecosystems, and we shake viruses loose from their natural hosts. When that happens, they need a new host. Often, we are it.” We can’t do these things without consequences.

On the positive side, some towns and cities have experienced cleaner air and much lower levels of noise pollution, reminding us of the value of such things. Communities have had to work together and we’ve rediscovered the value of community and working for the common good. Differences have largely been put aside and we’ve worked together to tackle a deadly foe.

Perhaps most significantly, we’ve learnt that people can change their behaviour when faced with an existential threat. We’ve also employed technology and used information, both to seek solutions and to mitigate the impacts. This holds promise for the changes we need to make elsewhere.

Now that we’ve seen the real-life impacts of one crisis, the impending climate crisis may not seem so remote after all, prompting real and radical action.

In the short-term, our world has been turned upside down. Financial markets have plummeted and sustainability has taken a back seat. We are all adapting to the new normal, but sooner or later, the other big issues of our time will re-emerge and I believe that sustainability will become ever more part of the investment landscape.

Here’s why:

  1. Existential threats have become real. It’s all very well being told about something – it’s quite another thing to experience it. The natural tendency is to ignore something if it’s far enough in the future, but once it’s happening on our doorstep there’s no ignoring it. This isn’t something on the news in a far-off country that we can forget about, but a real tragedy unfolding amongst us, affecting people we know and care about. The emotional scars won’t heal quickly and will leave an indelible mark on many of us. The current crisis is one of health, but there are others – notably climate change and biodiversity loss. Now that we’ve seen the real-life impacts of one crisis, the impending climate crisis may not seem so remote after all, prompting real and radical action.
  2. The rules have changed. Who would have thought that a right-wing Tory government would introduce by far the most radical socialist policies in living memory? These are truly extraordinary times and a clear demonstration that where there’s a will there’s a way. If the Conservative government can abandon all the normal fiscal rules and pump staggering amounts of money into the economy to counter a potential disaster, there’s no reason why we can’t act in what might previously have been considered unthinkable ways. Investors who have seen their pension funds, ISAs and portfolios shrink, will no doubt want to know more about how their money is invested, moving beyond the traditional metrics of risk and return to questions of how returns are generated and the resilience of these returns. The rationale for investing in solutions to social and environmental challenges can only be strengthened.
  3. The culture has changed. For so many years, we’ve morphed into a society of individualism and rights over responsibilities. In the face of crisis, this has been shown to be utterly inadequate and misguided. The value of the common good has never been more apparent. This isn’t going to disappear overnight. A rediscovered ethic of doing things for the public good as well as self, will translate into wanting to use money to make a positive difference. And as sustainability funds continue to demonstrate their financial as well as societal value, they will become increasingly core to investment strategies. Resilience to existential threats and exposure to long-term sustainability drivers will be seen to be an important part of this changed investment landscape.
  4. Priorities have changed. When faced with a threat to life and society as we know it, our priorities can scarcely fail to be profoundly changed. What seemed significant suddenly seems trivial and we remember what it is to be human. Health and well-being of all has very quickly become the number one priority. Uncertainties over the future are bound to linger, so health and the global environment will remain uppermost in people’s minds. This includes the financial sector, which is wholly dependent on a sustainable planet for its longterm future. Delivering, or at the very least maintaining, societal benefits, is sure to be further forward in the investing public’s mind.
  5. The world has changed. In the immortal words of Charles Dickens in A Tale of Two Cities: “It was the best of times, it was the worst of times”. Like any profound experience, millions of us will have been emotionally impacted at a very deep level. This won’t evaporate as normality resumes. The world will be a changed place. It will be a place where there is a greater awareness of the real-life impacts of global issues, and an increasing recognition of the importance of investing in solutions to those challenges. It will also be a place where we can’t ignore what’s happening on the other side of the world, or in other parts of our community, because, directly or indirectly, it impacts us. All of us will have suffered in some way – lost loved ones, lost jobs, lost freedoms that we took for granted, lost the contact of others – and we will be more aware that these things can’t be taken for granted. It will take time to rebuild our lives, but there is the hope that the world might be just a little more kind, more equal, more ready to take the sort of action that will lead to regeneration of an exploited planet.

Read the latest Good Investment Review of Ethical and Sustainable Funds by 3D Investing here.

This article is provided for general information only and is not intended to amount to advice on which you should rely.   You must obtain professional advice before taking, or refraining from, any action on the basis of the content of this article.  Ethical Money Limited is a wholly owned subsidiary of Square Mile Investment Consulting and Research Limited.

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