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.
When it comes to sustainable investing, 2021 has picked up where 2020 left off. Investors continue to focus on Environmental, Social and Governance (ESG) concerns, suggesting that last year’s heightened attention was not just a flash in the pan.
But 2021 is generating its own areas of focus. Here are three we think it’s worth keeping an eye on.
Building back greener - climate change to remain the centre of attention
It’s clear that the climate remains a key consideration this year. We’ve seen this already on the international stage: President Biden’s use of executive orders concerning climate policy within his first 100 days of office has been nothing short of breath-taking. “Environmental justice” is at the heart of his plans for office. With the US staking its claim to global climate leadership once again, many others will be keen to follow suit.
This could have a significant bearing on your investments. Consider three:
First, green infrastructure projects are at the heart of many governments’ post-pandemic recovery plans. As evidence of his intentions, the chancellor, Rishi Sunak, recently unveiled a new green bond to be offered through NS&I. But opportunities won’t be limited to government bonds. Investors can look for them across different assets, from infrastructure funds to equities and investment trusts.
Second, expect divestment to become increasingly commonplace. Already this year, we’ve seen two major investment houses, BlackRock and Aviva, pledge new divestment policies from climate laggards. Others will follow.
Thirdly, expect accusations of greenwashing to follow close behind a splurge of good intentions. Greenwashing occurs when companies or funds exaggerate their green credentials in order to avoid criticism. It’s not widely discussed among private investors yet, but that could change soon.
The ‘S’ in ESG
2020 did much to raise the profile of the ‘S’ in ESG. The same pandemic had unequal effects, hitting minority and low-income communities hardest.
Companies across the globe were forced to confront social issues within their local areas and workplaces. The Black Lives Matter movement, meanwhile, changed the way societies think about and discuss issues of race and diversity.
We expect the focus on the social side of ESG to continue through 2021, especially as we begin to piece together COVID’s lasting structural damage. Efforts to ensure equitable distribution of vaccines are failing, which risks further accentuating disparities between rich and poor countries.
Issues around employment and treatment of workforces are also hot on the agenda. According to the International Labour Organisation, 77% of the world’s workforce was being affected by COVID restrictions at the start of this year - slightly down from a peak of 85% in July. 8.8% of global working hours were lost over the year.
The impact has disproportionately affected women. Globally, employment loss for women stands at 5%, compared with 3.9% for men. Here in the UK, 23% of women have seen a drop in their income over the past 12 months.
Young people in the UK also felt the burden - more than half of pandemic job losses were among under-25s.
Supply chains were another major sustainability theme of 2020. They’re likely to be just as important this year, as companies look to make their supply chains and distribution channels more resilient going forward. There will be scrutiny over how employees at the heart of those channels are treated. Scandals like that surrounding Boohoo’s treatment of its staff were central to the ESG story of 2020.
And as economies recover and the pandemic subsides, governments will pay close attention to both the numbers and the manner in which people return to work. For lots of us, the pandemic has offered new opportunities to work remotely. It’s immutably digitalised the way many industries work. As we’ll see below, that’s both good and bad.
One of the pandemic’s lasting legacies will be the way it’s moved our lives further online. White-collar industries have, for the most part, adapted to remote working. Friends and families have been able to keep in contact via video calling and social media. Many households have ordered shopping and food deliveries from the comfort of their homes for the first time.
We may bemoan the fact, but technology has become an even greater part of our lives.
But, again, what’s become commonplace for many risks deepening inequalities across societies. Around half the global population has no internet access, according to estimates from the International Telecommunications Union, with much lower levels typically in developing nations.
In rural and remote areas, access to internet and online government services can be unreliable or non-existent. Companies’ ever-greater reliance on digital resources is reducing opportunities for many - 82% of UK job vacancies advertised online require digital skills, according to the UK government.
Digital shifts begets another sustainability question. Big Tech was the big winner last year. Companies like Amazon and Microsoft profited from changes in habits forced on us by lockdowns. But as these companies go from strength to strength, many are growing uncomfortable with their level of dominance.
In the US, a flurry of antitrust lawsuits directed at the biggest technology companies have sought to check the previously untouchable power of Silicon Valley. Recently, we’ve seen Facebook clashing with the Australian government over the former’s decision to switch off news sharing on its site in the country.
Australia and Facebook have tentatively resolved their differences, while antitrust procedures rumble along slowly in the background. Nevertheless, the desire to curb Big Tech’s power remains. Investors whose portfolios have become increasingly dependent on these pandemic winners will want to keep an eye on such tensions.
More on Sustainable and ESG investing
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. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. 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 an authorised financial adviser.
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