Global Pandemics and the Case for Sustainable Investing

27 May Global Pandemics and the Case for Sustainable Investing

Remember a time before COVID-19?

Gridlocked motorways, crowded high streets, fast fashion and discount air travel were simply a way of life. The economy was thriving and consumers had endless choice.

Global warming has been a concern for many years, but until recently, environmental issues were the reserve of committed activists and the occasional school project. In 2018, it took a 15-year-old Swedish schoolgirl to bring climate change to the forefront of the world’s attention.

While the current pandemic is dominating international media, climate change is no longer a leading issue for most people.

But we cannot ignore how these factors are interlinked. Many of the features of modern life which contribute to climate change also aided the spread of the pandemic – international travel, crowded cities, and a reluctance to make any changes to business practices until it was already too late.

Measures taken to slow the disease have also had an environmental impact. Businesses are adapting because they have no choice. We need to consider how sustainable our old way of life was and which changes can still have a positive impact once the lockdown is over.

A Brief History of Climate Change

The concept of climate change and the human impact of the greenhouse effect were first identified in the late 19th century as the Industrial Revolution peaked. Thomas Edison was an advocate of renewable energy as early as the 1930s.
While support for this view increased over time, it was a mere whisper in the background of industrial progress.

As can be seen from the graph below, CO2 emissions have steadily increased over time:

global

Even in the current era of awareness, recycling and plastic-shaming, the increase has barely even levelled, let alone reduced.

As the BBC article accompanying the graph states, global temperatures have increased by 1 degree Celsius since the mid-18th century. If left unchecked, further rises of 3-4 degrees are expected by the end of this century. This would be catastrophic for the world’s ecosystem and could make life impossible in some parts of the world.

The Impact of Lockdown

But the graph also shows that 2020 is on track to report the most dramatic drop in carbon emissions in the last 120 years.

As well as reduced emissions, we are also seeing clearer skies and cleaner water. Animals are venturing back into areas they had long since left behind.

The reasons for these changes are easy to identify, for example:

  • Reduced travel by air, car, and boat
  • Less demand for consumer products and therefore less waste
  • Lower requirement for energy on an industrial scale

It is no secret that these issues contribute to climate change, so when the perfect storm of a pandemic forces the world to shut down, environmental improvements are to be expected.

The surprise is that we have started to see significant changes within months, if not weeks.

One of the main problems with addressing climate change is that each action taken by an individual or corporation, on its own, does not create significant change. There was also a perception that any improvement would be many years in the future.

The pandemic has proven that swift changes can result in almost-instant improvements.

Life After Lockdown

We cannot live like this forever. Eventually, we will see family again, shops will start to open and services will resume. We may even be able to go on holiday, attend a concert or watch a live sporting event.

But as well as a lifelong commitment to hand hygiene, there are a number of other lifestyle changes that could be made permanent: For example:

  • More working from home, leading to less commuting and lower traffic emissions
  • More online resources for education and entertainment
  • Reduction in shopping as a leisure activity and greater care taken over purchases
  • Increased interest in sustainable activities such as gardening, cooking and upcycling

These changes are likely to result in fewer emissions and less waste.

The future of air travel is questionable, with quarantines and social distancing requirements potentially scuppering holiday plans for some time yet. Flights are likely to become more expensive, particularly as some airlines may not survive the crisis and others will need to operate at lower capacity. Reduced air travel is likely, which will contribute to lowering emissions.

Many businesses have been forced to adapt to changing consumer demands, staff shortages and logistical complications. Some may not survive. Businesses of the future must be sustainable, resilient, agile and tech-capable.

Ethical and Sustainable Investing

Ethical investing used to be at the fringes of financial planning. Most investment managers offered a one-size-fits-all ‘ethical’ fund to satisfy clients who did not want their money contributing to weapons dealers or tobacco production.

Traditional ethical funds screened out companies operating in unscrupulous activities. The costs were usually higher, and performance lower than typical equity funds.

Things have changed rapidly, and Environmental, Social and Governance (ESG) criteria are at the heart of many investment propositions. This positive take on ethical investing aims to:

  • Limit or avoid companies which cause harm to the environment or human rights.
  • Invest in innovative areas with a positive impact, such as renewable energy or healthcare
  • Focus on companies with ethical business and labour practices
  • Use voting powers to positively influence the companies within the portfolio

Ethical investing is no longer ‘alternative,’ as companies have to adapt to more sustainable models to survive. We have access to more information than ever to make responsible consumer and investment decisions.

Conclusion

To quote Greta Thunberg:

‘If one virus can wipe out the entire economy in a matter of weeks and shut down societies, then that is proof that our societies are not very resilient. It also shows that once we are in an emergency, we can act and we can change our behaviour quickly.’

Building a more resilient and sustainable economy should not be seen as an obstacle to making a profit. In the long-term, it’s likely to be the only realistic course of action.

Please don’t hesitate to contact a member of the team if you would like to find out more about ethical and sustainable investing.