Published: 11th April 2020 (3 Min Read)
This is a time of the year when many people think about ethical issues. Over this Easter weekend please think about the suggestion I am going to make below.
I believe there is a good chance, when we emerge from the current crises of health and economics, that the greater sense of social responsibility which many of us are embracing, will cause a shift in many investors’ approach to their portfolios.
Call it “socially responsible investing”, “ESG”, “ethical”, “impact”, “engagement” or “sustainable”, at least at the margins this is surely going to happen.
Social distancing has changed our behaviour, but will these changes persist?
It is difficult to answer the question, but there are some things that have changed for the longer term.
- The single most important change for the global economy is the shift of dependence from monetary policy to fiscal policy, which will be made affordable by central banks buying substantial volumes of sovereign and corporate assets. The shift to fiscal dependence means that governments will be paying greater heed to the demands of their electorates and spending more as a result.
- A significant part of future national investments will be in infrastructure. Renewable energy, smarter transport and healthcare systems are likely to benefit.
There are some other things which have become more obvious, including:
- Quality investing makes sense. Investing in assets with good finances means they are durable. If the management is good, then they look after their clients and their staff.
- Austerity is dead. More popular policies are in vogue.
- Over the course of just a few weeks those businesses which could shift further online have done so. They will rarely return whence they came.
- The commitments which were made by politicians to spend more on environmentally friendly investments prior to the pandemic have been increased as a consequence of needing to boost economic growth when we emerge from the lock downs.
And then there are some norms which may change:
- Companies and households may choose to source more of their purchases from local suppliers.
- Should shareholders expect that workers will receive a greater share of the corporate cake? Will diversity be embraced more than today?
- Might share buybacks be banned?
- Might taxes go up under a Conservative government?
- Consumers may increasingly consider that fewer goods are quickly disposable.
- Will consumers fly as much as they did? Will we commute differently?
- Will more people work from home more often?
- Will leisure habits change?
- Have we made a distinct shift to a cashless society?
- And so on
I don’t know the answer to all these things, but I do believe that, more or less consciously, investors will embrace “ESG” (Environmental, Social and Governance):
- Environmental sectors because they represent a source of growth opportunities, as well as making sense for environmental reasons.
- Social because there has been a reassessment of how we should lead our lives and look after others.
- Governance because it combines quality management and strong finances with a commitment to treating customers and colleagues fairly.
It seems to make sense.