Leslie Cliff is founding partner of Genus Capital Management Inc., an independent investment management firm based in Vancouver. Mike Thiessen is partner and director of sustainable investments
Without downplaying the tragedies of the COVID-19 pandemic, the disruption has forced a moment of evaluation, from our daily behaviours and habits to the principles that guide our decision-making. We’re seeing two new investment trends emerge as a result of this reprioritization - and some of these trends will have positive societal benefits in the long run.
The first trend is an increased reliance on technology. Technology was not only crucial for maintaining personal connectedness during Canada’s partial lock-down, but also for business resilience by enabling organizations to survive, or even thrive. Technology has been an enabler for two reasons: allowing employees to work remotely and allowing consumers to continue making purchases.
Retail in particular has seen a significant change in consumer purchasing behaviour. A recent survey by Gordon Haskett revealed that one in three Americans bought food online during the pandemic; for 41 per cent of this group it was their first online food purchase. Companies that invested in their online platform have benefited from being able to better meet consumer needs during the pandemic.
Periods of disruption highlight and amplify business vulnerabilities. Industry and company leaders are now tasked with safeguarding their businesses while anticipating changing trends, addressing market volatility and establishing long-term financial and operational resilience across the business. By embracing digital capabilities and upskilling, business leaders can help insulate their business from disruption, build resilience and even allow for operating at a high level, even in a remote environment. Given this, investment in technologies, specifically around digital transformation will be a prominent investing trend in the post-COVID-19 market. Similarly, we expect to see increased investments into those such companies that are upskilling and building resilience in the form of digitization.
The second trend is an increase in the number of investors considering the social and environmental impact of their investment decisions. The market downturn caused by the pandemic demonstrated what many sustainably-minded asset managers have been asserting for a while; ESG strategies are better at avoiding risk than traditional strategies. Investments in healthcare, technology and companies that prioritized employee safety panned out.
Historically most investors prioritizing sustainability or social aspects in their investing have done so for values-based reasons vs financial reasons. However, our divestment and ESG research, along with the research of others, has shown that you do not need to give up performance to invest with your values and a significant aspect of this is risk mitigation and hedging. The outperformance of many ESG or Fossil Free funds during 2020 so far has confirmed this point and many investors are becoming aware of this for the first time.
Many investors are even thinking beyond risk mitigation and the avoidance of harmful industries. These investors strive to use their capital to address the world’s most pressing challenges, in a form of investing known as Impact Investing. These types of investments are executed with the intention of generating a measurable beneficial social or environmental impact, alongside a financial return. Impact investments include projects or companies involved in health care, energy efficiency (such as cloud computing), renewables, education, and problem solving technologies. Typically these investments are focused on building a better future which makes them more anti-fragile amidst the disruption of traditional operational and business models. Not only have these investments typically fared well during crises, but the results of these investments facilitate and advance solutions, both environmental and social.
A need for greater safety, more resiliency, and increased sustainability are the cornerstones of these trends. As the economy begins to rebuild post pandemic, investors must continue to monitor and assess the changing landscape as part of their risk management efforts. This enables investors to fund the enterprises that will lead the world to a safer, more sustainable future. Whether there is a second wave of COVID-19 or a vaccine, will create a different investing landscape with slightly different opportunities. Despite the difference in these two situations, the investing trends outlined are applicable to both. Digitization will be the definition of resilience to future disruption and risk mitigation, with those organizations not upskilling fast enough, falling by the wayside. Similarly, the increased awareness of environmental and social issues amongst the public will catalyse a movement of socially-minded investors that use their money to address the world’s most pressing challenges.
Vestas Wind and Vertex Pharmaceuticals are two ESG stocks that we recommend holding.
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