Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

CLIMATE change may have dominated headlines, but there are other, pressing environmental and social trends that will impact the way we live, work and invest in the next decade. We look at four significant ESG megatrends that could have an important impact on share price performance, but may also create investment opportunities in the longer-term.

Biodiversity

In an alarming conclusion to its 2020 Global Risk Report, the World Economic Forum highlighted the failures on diversity, pointing to a rate of extinction tens to hundreds of times higher than the average over the past 10 million years. It added: “Biodiversity loss has critical implications for humanity, from the collapse of food and health systems to the disruption of entire supply chains.”1

Companies are taking note. In 2020, over 700 global companies, including Burberry, Citigroup and Proctor & Gamble teamed up to put pressure on governments to reverse nature loss by 2030.2 It is also moving up the agenda for policymakers. Alongside COP26, the less-publicised COP15 is taking place in October, discussing issues such as species protection and sustainable land management. Expect this to become an increasingly important part of investment analysis for fund managers and individuals alike.

Sectors to watch: food and drink, apparel and clothing, agriculture.

The future of work

While the start of September saw a tentative return to the office for many workers, a full-scale return to the 9 to 5 appears unlikely with hybrid working models the new normal. The pandemic has put power firmly back into the hands of workers. To tempt people back, companies need to look hard at the office environment and how much they pay. Many have been forced to raise wages as they struggle to recruit, particularly industries reliant on low wage workers such as hotels and restaurant groups.

Working life was already subject to disruption even before the pandemic. The advent of artificial intelligence (AI) has taken out low value, high repetition jobs in areas such as data processing, but even those in white collar jobs such as law or medicine are finding parts of their work replaced by algorithms. But new jobs – in logistics and in healthcare – are being created. The world of work is regenerating, with repercussions for companies.

Sectors to watch: commercial property, logistics, artificial intelligence.

The ‘S’ in ESG

Social factors have previously been a sideline to the large and more immediate problem of climate change. However, 2020 saw a public awakening on factors such as diversity and well-being. Corporate culture became a vital tool in building cohesion and sustaining productivity during an era of remote working. Companies are increasingly recognising the reputational vulnerability brought about by weaknesses in supply chains or poor labour rights.

Partly, this is a company’s ‘licence to operate’—a recognition that companies are not just there to serve shareholders, but all its stakeholders in society. Equally, social practices can be a barometer for corporate governance and responsibility.

Sectors to watch: tobacco, manufacturing, leisure and retail (which use low paid workers).

Privacy and security

Cyber crime is one of the world’s largest and fastest-growing industries, predicted to grow to $10.5 trillion by 2025.3 Addressing cybersecurity risks is a necessity for governments, institutions and businesses as hackers become more sophisticated and ambitious. For technology companies, it is becoming increasingly clear that they need to look after consumer data, and use it wisely, or face the wrath of regulators. Sensible businesses recognise that scrimping on cybersecurity is a false economy and corporate spending on cybersecurity is rising fast. It is likely to exceed $1 trillion by the end of this year,4 creating a significant opportunity for companies that can provide solutions.

Sectors to watch: technology, financials, energy/utilities.

More on Sustainable and ESG investing

Source:

1 - The Global Risks Report 2020, World Economic Forum
2 - Reuters Events, 30 May 2021
3 - Evalian, 12 July 2021
4 - Cybercrime Magazine, June 2019

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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