How will companies need to adapt in the future? And did the recent corona crisis change sustainable investment trends? We sat down with Silvia Wegmann, Head of Sustainable Investment Solutions, and Susan Joho, Research Analyst, to feel the pulse of the markets.
Silvia, how did you perceive the Corona crisis as an expert in sustainable investing?
Silvia Wegmann: “Well, at the time I decided to focus on the topic, which was more than fourteen years ago, there wasn’t even more than a handful of books or essays about sustainability. And though over time it became a fundamental part of investors’ vocabulary, there has always been equally strong critical voices that saw sustainability-themed strategies as mainly a bull-market trend, which would falter at the first sight of a downturn. The corona crisis served as this ‘acid test’ and sustainability can finally show what it’s made of.”
What do sustainable companies do differently?
“In the past there were cynics, who considered sustainable investors synonymous with tree huggers. However, this has definitely changed in recent years. It took a lot of educational work, not only from me internally, but also a lot of tailwind from the regulatory side. Sustainable companies have proven to have more innovative solutions to meet today’s sustainability challenges and thereby support the transformation of entire sectors.”
How will companies need to adapt in the future?
“I think the coronavirus pandemic will put more companies under scrutiny for decisions that impact employees, customers and society. Sustainable investing never was and never will be about creating shareholder value, but about maximising value for all stakeholders. Even though Covid-19 has potentially opened further doors to sustainable investments, it is a megatrend with long-term impact.”
Susan, you recently published a white paper about the impact of the corona crisis on sustainable investing. Can you summarise the key points please?
Susan Joho: “I described the pandemic as a ‘baptism of fire’ for sustainable investments. They tend to be less prone to bankruptcies and earnings downward revisions, as higher prudence towards ESG risks helps to protect them from scandals and can improve innovation and productivity. The corona crisis has reinforced demand for sustainable investments. It served as a reminder of how fragile our systems can be to unfamiliar shocks and thereby strengthened the desire to support organisations that are actively helping to reduce imbalances.”
Recently the focus has shifted to the social aspect, which grew even more critical by the current health crisis.
Are there specific themes which grew more important in this environment?
“Indeed. Until recently, an important trend was to concentrate on the environment, since climate change is largely is regarded as the greatest challenge of our time. Recently, however, the focus has shifted to the social aspect, which grew even more critical by the current health crisis. Customers and investors are increasingly avoiding companies with sensitive working conditions. Furthermore, the organisations themselves have recognised that the inclusion of the social factor creates added value.”
Will the boom continue?
“We believe it will. It’s worth noting that these strategies have been around for decades. The inflows, however, have only occurred in the last five years. So it is really the first time these strategies have gone through an ‘acid test’ as Silvia named it. Popularity has risen, and so have product supply and regulation, which will further support their maturing into an established investment segment."
What is going on in the markets? Julius Baer’s experts share their views.