Sustainable investment in a post-Covid world

January 4, 2021 11:39 am

Interest in sustainable investing and ESG (environmental, social and governance) has never been greater with the Covid-19 pandemic adding to concerns such as the climate crisis and the dumping of plastic in the sea.

Whether David Attenborough’s TV documentaries, protests by the Extinction Rebellion, or policy recommendations from bodies such as the UK Committee on Climate Change (CCC), it is impossible not to be aware of the urgency of action needed to tackle these crises. This includes reaching targets such as the reduction of greenhouse gas emissions to net zero by 2050. Everyone’s investment decisions are a key way in which such objectives can be achieved and, therefore, an increasing number of people care about how they make their money as well as how much money they make, leading to rising demand for sustainable funds.

Research conducted by Liontrust shows that 73% of consumers say sustainability is an important part of their everyday life but just 43% of these people invest sustainably (Source: Research in Finance, 2020). Of those who do not invest sustainably, 63% are aware of sustainable investment, showing the potential for growth.

The top reason for consumers not investing sustainably is the belief that it could hinder performance, with 32% citing this factor. To counter this, performance of sustainable and ESG funds has shown 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 such performance is one of the key drivers behind increased demand.

At Liontrust, we have a 13-strong Sustainable Investment team that has been managing funds in this way for two decades. Our process is based on a core belief that sustainable companies have better growth and are more resilient than the market gives them credit for. We begin with 20 themes, all focused on the shift towards a more sustainable economy, and use these to find areas of structural growth and invest in companies contributing towards a cleaner, healthier and safer world.

Looking forward, Covid-19 has enforced massive change around the world, with years of behavioural shifts squeezed into weeks. But despite its impact on our health, livelihoods and economies, one thing this crisis has not altered is our belief that companies exposed to sustainable themes will continue to see strong growth in coming years. Crises often accelerate changes that have been in action for years and this is happening across many of our themes.

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 growth from its environmental impacts and this will largely be through more efficient data centres.

What is becoming clear is that 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 and safer, as well as striving to make it fairer. We will continue to invest in businesses at the vanguard of such changes.

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This article was written by Peter Michaelis, the Head of the Sustainable Investment team at Liontrust.

Key Risks and disclaimer

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. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term. Some of the Funds managed by the Sustainable Future Equities team involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. Issued by Liontrust Fund Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518165) to undertake regulated investment business. This document should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. It contains information and analysis that is believed to be accurate at the time of publication but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing. 20/611