Investors’ fears about the length and depth of this economic crisis led to the worst stockmarket fall since the global financial crisis. While many have since debated what type of recovery we should expect – U-shaped, V-shaped, or W-shaped – we think an important question can be overlooked: what will be the characteristics of the recovery?
This crisis has highlighted how interconnected our economic prospects are not only with our health, but with that of animals and with the environment in which we live. It has also highlighted several of the most important challenges that global society must overcome.
As policymakers ponder how we can help ensure that our society becomes more resilient, we believe it is important that investors consider how companies can shape the future. Those that provide solutions to the most pressing global challenges stand to not only deliver a positive impact, but also be financially successful.
An opportunity to rethink priorities
Volatile markets, like those of early 2020, naturally tempt investors to think short-term. Yet there is scope to believe that some of the challenges we face today could well prompt more to recalibrate their investment time horizons.
The UN Sustainable Development Goals (SDG), which codify the world’s most pressing environmental and societal challenges, provide a framework for determining what should be at the forefront of the political, social and economic long-term agenda.
The healthcare sector is an obvious illustration of how solving these challenges will undoubtedly present long-term investment opportunities. Even before the pandemic, ageing societies have put upward pressure on healthcare costs. To realise SDG 3 – to ensure healthy lives and promote well-being for all at all ages – will require significant investment.
It is also increasingly untenable to delay urgent action to combat the causes and consequences of climate change: SDG 13. Thankfully, the solutions – including making buildings more efficient, reducing food waste and moving to a circular economy – are technically available, and present vast opportunities for companies that can successfully tackle this global challenge.
Doing so requires focus and willingness. We believe it is possible that dealing with the coronavirus and its impact might accelerate moves to address some of these long-term issues.
A transformational recovery?
It is possible that the economic shutdown will have positive lasting consequences for the planet. We have been forced to live in ways that have a lower carbon footprint, including working from home – rather than commuting – and eating more local produce where global supply chains have been compromised. The attractions of cleaner air are plain for all to see.
There might also be pressure from governments that we rebuild a cleaner, greener economy. For the first time since the global financial crisis, we are seeing a strong boost to government spending around the developed world. Given the global imperative to address climate change, it is hard to believe that the government stimulus will not have some focus on encouraging sustainability, especially in Europe.
As well as potentially catalysing the transition to a low-carbon economy, we believe there will be focus on remedying societal challenges that will, in many cases, be exacerbated by the pandemic. The economic shutdown, which will create more poverty, has revealed how precarious employment in the modern economy can be. It is possible that the pandemic will stir greater public enthusiasm to address society’s challenges – and to invest in solving them.
For those looking to invest in companies that are poised to help solve the world’s greatest challenges, the stockmarket downturn created some compelling entry points for long-term investments.
Opportunities are not limited to company shares. More bonds are being issued, by both companies and governments, where money is being lent specifically to address societal or sustainability issues. In April, the Inter-American Development Bank, a supranational body, issued a US$2 billion bond to specifically support countries across Latin America and the Caribbean in their fight against the coronavirus.
Although there are some unintended consequences of the pandemic – such as greater use of single-use plastic and private cars – these are short-term. Even with global crude prices having fallen to a two-decade low, renewable energy sources like wind and solar are competitive with oil and gas on cost, even without subsidies.
Regulatory pressure is also providing strong tailwinds for companies that play a positive role in society. European Union law, for example, requires large companies to disclose information on how they manage certain social and environmental challenges. Globally, poor corporate citizens have fewer places to hide.
The short-term focus for society is of course to combat the pandemic and mitigate its effects, including poverty and unemployment. Once the global economy returns to growth, though, we are optimistic that solutions to the world’s longer-term challenges can be galvanised. Investors can play a key role in catalysing this process.
The views expressed here should not be taken as a recommendation, advice or forecast.
We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.
The value and income from any fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that any fund will achieve its objective and you may get back less than you originally invested.