Hamish Chamberlayne, Head of Socially Responsible Investment, expects continued uptake of sustainability issues by companies, investors and active managers.
What are the key themes likely to shape markets in 2019?
The long-term trends we analyse have not changed, although recent market volatility has potentially created buying opportunities. Sustainability issues continue to grow in importance, with active managers making a positive impact by consciously allocating capital towards companies that are contributing to a more sustainable planet, and away from those doing harm. The ‘Great Acceleration’ of the past few decades has led to a phenomenal increase in the demand for energy, land and water. Now the concurrent climate change and environmental destruction is too obvious to ignore. To quote the chief executive of the World Wildlife Fund, “we are the first generation to know we are destroying our planet and the last one that can do anything about it”.
Plenty of companies recognise that a sustainable approach to delivering goods and services, and providing solutions to social and environmental problems, can be profitable. All this feeds into our consideration of the quality of a business and its sustainability on a forward-looking basis.
Where do you see the most important opportunities and risks within your asset class?
When we think about sustainability we see a world of opportunity. We are seeing rapid increases in renewable energy, many more electric cars, and billions more connected devices with semi-conductors and microchips capturing and generating vast amounts of data. All of this will be stored in the cloud, requiring memory and then analysed and made useful by software in order to create efficiencies, increase productivity and generate value. As well looking at many leading companies related to these areas, we also examine consumer companies leading the way in the circular economy; and to companies in health and life insurance, healthcare services, water technology, electrical safety, architectural design, education and entertainment. We also believe that oil prices will start to decline again – in fact a high oil price is self-defeating since it only serves to accelerate innovation and substitution.
How have your experiences in 2018 shifted your approach or outlook for 2019?
Our strategy focuses on ten investment themes that lead the team to explore companies that provide solutions to long-term environmental and social megatrends. With sustainability closely linked to innovation, we can take advantage of new solutions while helping to avoid the disruptive outcomes they often accompany.
As active investors focused on delivering long-term returns, we have to be good stewards of our clients’ capital, directing capital towards productive and responsible investments. Ultimately, these factors feed into the consideration of the quality of a business, and its sustainability on a forward looking basis. Mean reversionary events are inevitable over shorter time periods and, when they happen, it is important to remind ourselves of the difference between value and valuation. Many factors can cause fluctuations in near-term valuations, including interest rates. Over the long term however, we believe that growth poses the greatest potential for generating value for investors. To our mind, creating long-term investment returns is, by its very nature, investing in sustainability.
Volatility: The rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. It is used as a measure of the riskiness of an investment.
Nothing in this document is intended to or should be construed as advice. For illustrative purposes only.