Reasons to be positive

Written by Peter Michaelis on 27th Jul 2020

Over the past few months, country after country around the world went from business as usual to lockdown. Deserted streets, closing businesses, mass unemployment and a rising death toll are a harsh counter to any positive view of 2020 and beyond.

The Covid pandemic, climate emergency and Black Lives Matter movement are critical challenges to our model of capitalism. They show starkly where it is failing: prioritising efficiency over resilience in healthcare, not accounting for the enormous cost of carbon emissions, and allowing persistent inequalities to develop within societies.

Our natural world

The parlous state of our natural world was summed up in a recent podcast by Inger Anderson, head of the United Nations Environment Programme (UNEP), in which she gave a dismal report card on the effect of human impacts on land, sea and air.

In each area, we have drastically decreased the resilience and abundance of the natural ecosystems upon which we ultimately rely. We are altering the chemistry of our atmosphere and oceans in ways that will negatively impact future generations, and on land we deplete our soil more rapidly than it can possibly replenish.

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We do not ascribe a financial value to our forests, oceans and atmosphere, in spite of understanding how essential they are to our livelihoods as well as those of future generations; the system is definitely not working for our environment.

Social failure

On a social level, we know the model is definitely failing when in a country as wealthy as ours, those essential nurses, carers and teachers cannot afford housing in the areas they work and particular ethnic groups are persistently disadvantaged.

And yet despite all this, I believe our system of capital markets and competition between companies has to be a major part of the solution. Capitalism is adaptive by nature and people working together with companies, putting capital to work towards a common purpose, has delivered immense good in many areas.

Much of the progress towards the higher quality of life and reduction in poverty has been at least partially driven by this, leading to the vaccines and cancer treatments, solar and wind generators, electric vehicles, LED lighting, the internet and modern communications, and countless other products and services that make our lives better and more sustainable.

Reasons to be optimistic

Therefore, on reflection, I still believe we should be optimistic about the future. The crisis is terrible but the response shows how we can overcome challenges through co-operation, applying ingenuity to positive ends and investing in businesses to deliver a positive impact.

There are stark parallels with how we have to deal with the climate emergency, loss of biodiversity on land and sea, and sharing prosperity more widely and more fairly. I believe that, after we have suppressed this pandemic, we will intensify our response to these challenges, underpinning key sustainable trends.

We believe the crisis will result in major changes to how society behaves and this should support and accelerate some of the trends and themes integral to sustainability. We would hope to see shifting priorities in many areas, from realising a good healthcare system is worthwhile, to remunerating key workers properly and addressing inequality, to understanding supply chains and how things get to supermarket shelves. Trends toward improved diets and more exercise, as well as better air quality, will also persist.

Investment process

Our investment process – developed and honed over two decades – begins with 20 investment themes, all focused on the structural shift towards a more sustainable economy. Our emphasis is on identifying and understanding the changes that will make the world cleaner, healthier and safer, and our process is designed to highlight companies that are on the right side of this transition.

We continue to believe that sustainable companies have better growth prospects and are more resilient than businesses not prioritising ESG – and these advantages remain underappreciated by the wider market. While Covid-19 and its fallout will have short-term impacts on many of our 20 themes, both positive and negative, we feel they will be all the more relevant longer term as the economy recovers.

Connecting people

Connecting people: This looks at how we can be better connected through the infrastructure that helps us communicate and the service providers we use to do this: think about mobile tower networks and internet, data and voice providers.

Companies exposed to this theme have performed well, as have those within our Increasing cyber security theme, as remote working and the need to protect end users increases.

Consumption and behavioural changes: While slowing the spread of the virus, lockdowns have had a negative impact on consumer-facing businesses (travel, dining/going out, collective pursuits, non-essential bricks and mortar retail). For our

Enabling healthier lifestyles theme, which promotes exercise through affordable gyms and gym equipment, social distancing has hit businesses hard but we are confident demand will come back quickly post-lockdown, with people potentially even keener to get fit.

Investment themes

Our ‘Making transport more efficient’ theme, through a modal shift away from driving cars to safer and more efficient public transport (trains and buses), has also taken a hit as these services have all but shut down although, again, we feel this is temporary.

Moving to our 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 solve this crisis and come up with an effective treatment.

We should feel emboldened by our collective efforts in response to the virus and go further to make our economy cleaner, healthier and safer, as well as striving to make it fairer, and we will continue to invest in companies at the vanguard of these changes.

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Key Risks
Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital.

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