As governments focus on funding to tackle climate change, what does this mean for investors?
The coronavirus pandemic has put environmental concerns and social inequalities into the spotlight, and policymakers have responded by declaring that the recovery can improve the world around us by “building back better”.
For example, the EU has earmarked around a third of its €750 billion recovery fund to fighting climate change. Hundreds of potential projects could benefit, from low-carbon steel manufacturing to electric vehicle battery production.
Other regions have made similar commitments. Japan has announced a spending package that includes trillions of yen aimed at investing in new digital and green technologies. In the US, Joe Biden’s manifesto included pledges to build sustainable infrastructure and a clean energy future. The UK government has promised to promote a green recovery with jobs in renewable energy industries. Meanwhile, China’s pledge to reach carbon neutrality by 2060 depends on extracting greenhouse gases from the air on a massive scale.
These stimulus packages are likely to create exciting opportunities for investors in some of the economy’s fastest-growing areas. Investing in well-managed companies that have a positive impact on society and the environment can make good financial sense too. They may be less likely to suffer reputational damage that can harm their share prices, and tend to be better prepared to meet future strategic challenges and take advantage of new business opportunities.
Although there’s no standard definition of what it means to invest sustainably, environmental, social and governance (ESG) factors provide a useful set of standards to assess potential investments. We believe embracing an ESG framework can help our managers to identify businesses that should be able to operate profitably and sustainably for many years to come.
Colin Morton | Franklin Templeton Investment Manager | Omnis UK All Companies Fund
OUR INVESTMENT CASE
There are lots of ways investors can gain exposure to sectors and companies that have the potential to benefit from government spending packages and policies designed to support a sustainable recovery from the Covid-19 crisis.
We expect all our investment managers to integrate analysis of ESG risk and rewards into their investment processes and we only engage with investment managers that are signatories to the United Nations Principles of Responsible Investing, the gold standard in the wealth management industry when it comes to incorporating ESG issues into investment practice.
Over the next decade, we expect that an increasing share of global assets under management will be managed with an ESG focus.
