As long-term sustainable investors, we have faced questions over the years about whether ESG (environmental, social and governance) would survive the next downturn and Covid-19 has brought renewed scrutiny. Our belief is that the prevailing system of capital markets and competition between companies has to be a major part of the solution to global crises including climate change, the dumping of plastics, obesity and inequality.
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People working together with businesses, putting capital to work towards a common purpose, has delivered immense good in many areas. Much of the progress towards higher quality of life has been driven by this, leading to the vaccines and cancer treatments, solar and wind generators, electric vehicles, LED lighting, internet, and countless other products and services that make our lives better and more sustainable. Our view remains that as we start to look past Covid-19, the tools companies have developed will be the making of sustainable investment.
Crises often accelerate changes in action for years and this has been happening across many of our sustainable themes during the pandemic.
Our Connecting People theme is one example as millions of us have worked from home and stayed connected with friends and family digitally. Rising demand for more digital communication, as we become more connected, increase our data consumption and become aware of the environmental impacts of travel, has been evident for years but lockdowns have supercharged this shift.
Companies such as Cellnex and TeamViewer – an operator of wireless telecoms infrastructure and a company specialising in remote desktop software – help towards more seamless digital connection and remote working and we believe the increased demand for their products over recent months is not transient but the beginning of a permanent shift in habits.
While increased communication is important for the development of a sustainable economy, however, one challenge is to decouple this growth from its environmental impacts. Digital technology’s share of greenhouse gas (GHG) emissions is rising fast and therefore we see considerable opportunities coming from the trend towards outsourced storage and processing.
One thing the pandemic has hopefully done is open people’s eyes to the importance of getting healthcare right. While pharmaceutical companies are currently in the headlines because of their efforts against Covid-19, we invest in healthcare because the sector’s innovation is vital for a more sustainable future.
Over recent years, there have been significant advances across areas such as gene editing and DNA sequencing, and these are revolutionising how we think about treatment. The traditional model has a large element of trial and error, with people seeking help when they feel ill and hoping whatever drug or procedure prescribed is effective – but this often proves too late.
In contrast, we are moving towards a more personalised system where we can understand how someone’s genetic make-up leaves them vulnerable to certain diseases. A recent addition across our funds is US healthcare business Illumina, a global leader in sequencing for genetic analysis. Illumina continues to lower the cost of sequencing, enabling broader adoption of these techniques and accelerating trends such as liquid biopsy, which allows doctors to detect cancerous cells from a blood draw rather than source tissue.
Doing well by doing good
We expect healthcare companies to continue to do well by doing good; a company like Roche, for example, has seen significant demand for its diagnostic machines during the pandemic and we believe it will continue to expand its footprint. Even as Covid-19 testing declines eventually, these machines will be put to work to scan for diseases where governments have been reluctant to invest, such as Tuberculosis or Hepatitis C.
We anticipate the next year being one of recovery and it seems the shape of this will be more aligned with better welfare and lower environmental impacts. The idea of a just energy transition, for example, has gained traction and we have shown we expect many themes that have accelerated through Covid-induced lockdowns to persist. We will continue to invest in businesses at the vanguard of these changes.
Do remember that the value of an investment and the income generated from it 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. Past performance is not a guide to future performance.