We know which way the wind is blowing
AT THE turn of the year, sustainability was at the forefront of political and corporate discussions. The speed of technological innovation over the past 20 years has enabled developed and developing economies to generate economic growth. But the trade-off has been the longer-lasting impact on the environment and society as a whole.
Thankfully, 2019 appeared to be the year where people started to register this threat to the planet. Governments worldwide are now working to reduce the pace of change and construct a framework for solutions. Together with governments, the investment industry has a crucial role to play in financing these initiatives.
The opportunity to invest in companies which strive to make a difference has grown exponentially over the years, but had largely been ignored, due to the belief it would forfeit returns. Research has proved that not only is this a myth, but that investing in companies with a sustainable approach can even enhance returns.
Sustainability has been rapidly picking up momentum in the investment industry, with increased emphasis on investment strategies that integrate environmental, social and governance considerations. However, the Covid-19 crisis has gripped economies globally and governments have turned away from longer-term sustainable projects to focus on putting out the immediate fires. The initial fear was that this would slow the move to sustainable investing, yet the results so far suggest the opposite. Sustainable funds have exhibited resilience during the outbreak of the pandemic and subsequent market crash. A Morningstar report shows that in the first quarter of 2020 the global sustainable funds universe attracted over 45 billion dollars, compared with an outflow of over 380 billion dollars for the overall fund universe. The performance of sustainable funds has also been relatively strong, with a study from BlackRock showing 94 per cent of sustainable indices have outperformed their broad market counterparts for Q1 2020.
We believe Covid-19 has actually accelerated the agenda for sustainability. The oil price has shown wild swings and fell to the lowest on record at one point during the crisis, adding pressure on oil-dependent economies and the companies themselves to diversify and invest in renewable energy. The pandemic has also shone a spotlight on the need for healthcare investment, as companies work to find a vaccine and treatments for Covid-19. The technology sector, already a disruptor, has shown resilience in share price performance as many companies are providing solutions to the heightened demand for remote connectivity.
At NLP Financial Management we believe the impetus remains firmly with the industries and companies which continue to invest in positive change. We launched our Sustainability Portfolio almost two years ago to give investors the opportunity to fund these solutions personally. We have identified funds which can deliver an attractive return profile while adhering to our safe-hands approach.
So far, the results have met these expectations. For 2019, the Sustainability Portfolio delivered 17.8 per cent total return (gross of fees) compared to the MSCI UK index which was up 16.3 per cent with our portfolio having much lower volatility. Despite the difficult start to the year, the portfolio fared much better on the downside versus the market and has outperformed on the upside, losing only 1.9 per cent for the year to the end of May versus -19 per cent for the wider market. We believe the direction of travel for investing in a sustainable manner is gathering significant momentum, even in the face of disruptions caused by Covid-19.
Covid-19 has actually accelerated the agenda for sustainability’
Past performance should not be seen as an indication of future performance. The value of investments and income from them may go down as well as up and investors may not get back the amount originally invested and in some cases you may not get back anything at all. Adam Katten is managing director of NLP Financial Management, 020 7472 5550, adam.katten@nlpfm.co.uk. Authorised and regulated by the FCA