Sustainable business models the way to go

THE lessons from Covid-19 have shown that lifestyles and the way businesses are run have a huge impact on the world we live in.

Not surprisingly, investor awareness and demand for sustainable business models will become more prevalent, says UOB Asset Management’s environmental, social and governance (ESG) head of Asia-ex Japan Victor Wong.

He opines that the investment community has a key role in supporting the growing emphasis on sustainability and ESG issues by channeling capital into sustainable companies.

While there are three ‘R’s for environmental protection – reduce, reuse and recycle, he suggests another three ‘R’s in identifying opportunities for sustainable investments.

“While some think the positive environmental effects could be short-lived, certain behavioural changes may be here to stay.

“For example, companies are likely to continue work-from-home arrangements even after the pandemic eases to keep up physical distancing in the short term and for greater flexibility in the long term,” says Wong.

Thus, the resetting of business norms will reduce the need for daily commute and business travel, which will in turn help lower the carbon footprint from the transport sector, a major contributor of carbon emissions.

In the past, sustainability initiatives had inevitably been set aside by profit-driven companies.

Wong said that their observation has shown that companies with a purpose beyond profit have been more resilient in the face of the pandemic.

Morningstar’s analysis showed 62% of Esg-focused large-cap equity funds outperformed the MSCI World stock index in March 2020.

“The success of companies that see sustainability as their long-term business viability could spur others to retool their organisations with a greater focus on creating a positive impact for their stakeholders,” says

Wong.

In encouraging investors to revise their portfolios to include more sustainable investments, Wong highlights three sectors generating a positive ESG impact while experiencing increased demand amid the pandemic.

The technology sector is one of them. “With the use of technology, from information technology systems and video-conferencing tools to cybersecurity software, companies have adopted large-scale telecommuting during Covid-19 lockdowns.

“Technology has also made education less costly and more accessible online, especially for students who are underprivileged or in remote locations.

“Companies offering such technology could emerge as winners with favourable double bottom-line performance,” says Wong. Secondly, there is the healthcare sector. Wong says that the overwhelming healthcare crisis has revealed the fragility of many countries’ medical systems, characterised by inadequate lab testing capabilities, hospital capacity limitations and medical supply shortages.

“Companies with capabilities such as telehealth services and lab diagnostics can help bridge the gap and help strengthen medical infrastructure,” he says.

Thirdly, the insurance sector cannot be ignored.

From this pandemic, the world has learnt that we must always be prepared for low-probability, high-consequence events.

In the near term, insurers will benefit from increased commercial demand for business interruption insurance and consumer demand for health insurance.

“For the long term, investment opportunities lie in the insurers that integrate ESG into their underwriting models to offer better risk protection and that promote renewable energy, clean water, food security, sustainable cities and disaster-resilient communities,” says Wong.

“The success of companies that see sustainability as their business viability could spur others.” Victor Wong