Last year saw a step change in global interest in ESG investing (investing with an eye to environmental, social and corporate governance issues). According to research and data provider Morningstar, the total amount of money invested in sustainable funds rose by 50% to just under $1.7 trillion. This was a record year for the sector, but it is unlikely to be the last. Indeed, if anything, the impact of the Covid-19 pandemic has brought our interdependence into sharper focus. Now, more than ever, it is important for us all to work together towards improving sustainability.
This is good news for the long term. Adopting more sustainable approaches to investment, production and consumption – making better use of the resources available to us – is the only lasting way to maintain and improve global standards of living over time. This is why it's important to understand that ESG is not simply a fad or a trendy conversation topic with no practical impact. The reality is that sustainability is core to long-term success, both for wider economies and for individual companies.
Would you rather invest in a company whose management takes account of the long-term impact of its actions, or one that acts with an illusion of impunity? Would you rather invest in a company that is aware of political shifts and the changing desires of its customers and suppliers, or one that ignores them? Would you rather invest in a company with a well-articulated long-term strategy, or one whose management apparently cannot see beyond the next quarter’s earnings figures? When you put it in these stark terms, it’s clear that the only sensible approach for a long-term investor is to put ESG issues at the heart of their investment process.
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You need only look at the mega-trends shaping today’s economy to see this. Demographic changes and the ongoing rise of middle-class consumers will only increase the focus on ethical working practices and corporate accountability. For example, large companies are increasingly expected to take responsibility for ensuring that all aspects of their business – from their own shop floors, to the factories of their suppliers, to the producers of the resources they consume – are run in a sustainable and ethical manner.
Meanwhile, technological developments, from healthcare to cloud computing, are raising questions over the ownership, control and usage of personal data. This has knock-on impacts for every type of business, even those in traditionally “low-tech” industries. It spells increased structural demand in sectors ranging from cybersecurity to artificial intelligence.
And this is all happening at a time when resource scarcity looks likely to become a headline issue again. Commodity prices are already rallying hard as markets anticipate the global economy getting back on its feet in the wake of Covid-19. That will only increase the focus on finding and adopting alternative, more sustainable sources of energy. The greening of our infrastructure will create some of the biggest investment opportunities of the future, both within niches we are already well aware of, and those which are yet to be revealed. The electrification of vehicles alone will affect everything from battery storage to the “internet of things” (electric vehicles and the end-goal of autonomous driving will mean vast growth in demand for sensors, for example) to alternative energy generation.
The point is that sustainability is not an optional extra. The coming decades promise to bring huge technological and societal advances, but these will also result in massive disruption to existing industries. The companies that survive and thrive long into the future will be those that are already positioning themselves to adapt to and profit from these long-term growth opportunities – world-class companies with sustainable business models, solid balance sheets and responsible corporate citizenship. In short, companies that put ESG issues at the heart of their business models.
So it is equally important to invest in a fund that puts sustainability at the core of its process, rather than one with a skin-deep smattering of buzzwords. Martin Currie Global Portfolio Trust actively incorporates ESG performance into its investment research process and engages directly with company management to drive improvements where appropriate – an approach which is enabled by holding a concentrated portfolio of 25 to 40 investments. It is the only trust in its sector (*AIC Global Sector) to hold the highest possible Morningstar Sustainability Rating, while the company has been awarded the highest PRI (UN Principles for Responsible Investment) rating for four years in a row. We don’t take a simplistic exclusionary approach, or view ESG as a cursory overlay. Instead, we evaluate every company considered for the portfolio based on more than 50 constantly evolving individual criteria, to find the businesses and sectors that offer sustainable growth over the long term. In turn, we believe that this is by far the best approach to generating sustainable long-term returns for our investors.
Past performance is not a guide to future returns. Capital at risk. Values can go up and down. We do not target particular sustainability outcomes. This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice. The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
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