- 30th October 2020
- Posted by: Dean Hall
- Category: Newsletters
Environmental Social Governance (ESG)
I hope this update finds you well and finding some normality with our regional tiers.
As we have seen in the recent days the surge in virus cases in the UK, Europe and the US has moved markets once more. The uncertainty of the final outcome remains here with a vaccine seen by most as being the only way out.
The markets overall are positioning back defensively and this can create opportunity for active fund managers to exploit. They then can access the companies they want at a lower entry point, thus getting better value.
The main indices remain volatile and we will keep seeing swings day by day as case numbers move up.
A positive point here in the UK is the potential return of dividend payments based upon better than expected results. This is sooner than expected but I can’t see all companies returning back to normal for a little while yet as we still contented with lockdowns and restrictions.
Looking at the wider investment market, back in April I mentioned that Covid had upset the theme for 2020 which was to be Environmental Social Governance (ESG).
Socially responsible investing, social investment, sustainable socially conscious, “green” or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental good to bring about social change regarded as positive by proponents.
ESG is a term
that is being used to cover all of these in one go but there are subtle differences
between them. For the purposes of this update, we will use just use ESG as a
one size that fits all.
During the downturn and recovery since what we have seen is that well-run companies with a lean towards positive ESG have performed a little better.
Companies with better governance overall and have this ESG tilt have been able to take advantage of the older world companies struggling to adapt and move with new modern demand.
With the call for a greener recovery and the chance for us all to start again more momentum toward these ESG approaches and companies are now better placed to be major players in their respective sectors for years to come.
To put this marketplace into some perspective the quote that follows is from a sustainable investment fund manager back in May that saw £400 million added to his fund April alone.
‘It was happening anyway, but I do think that the last 10 weeks have probably done more than the last 10 years to make the case for sustainable funds being a core solution,’
What was once seen as fringe or specialised investment is making a jump to the mainstream.
What is also now driving this market is that fund managers will have to produce an ESG rating for their fund for all to see. This then means managers will not want to be shown they are the ones investing in companies that are poorly rated for ESG themselves.
Before we all think we are going to invest in all manner of far out risky untested companies and ideas, some of the most well-known major multinational companies have very high ESG ratings for example VISA and Microsoft.
As with all investment themes we are conscious of trends over major fundamental changes and the area of ESG will continue to gather momentum and support.
Investment providers are very much on the bandwagon now with their latest ESG report and how “green & sustainable” their fund is over their peers.
This area will be evolving and growing over time that much is very clear to see, and we must have this as part of our conversations when looking at dealing with your investment needs. It will be a point of discussion for us all moving forward and into 2021 it will certainly be front and centre for the whole investment market.
Overall in our investment journey no matter where it is going it is best to have a diversified portfolio that matches your risk views. That more anything else is the key to good long-term planning outcomes.
As always please feel free to get in touch if you want further clarification or just want a personal update.