It seems likely that 2020 will see an increased focus on sustainability within the investment community. Savers are increasingly interested in how their money is being put to work, while numerous sustainability issues are high on policymakers’ agendas. The changes in regulations and policy that could ensue have the potential for far-reaching effects on asset valuations. Consider the following examples:
- Artificial intelligence is increasingly driving sales revenues. A change in data privacy laws could significantly affect the use of personal information and the outlook for earnings in certain tech and consumer discretionary sectors.
- The political backdrop is expected to remain volatile in many countries. Companies will be under increasing political and social pressure to demonstrate responsible capitalism, which could have a significant impact on wage costs and profit margins.
- Policies to reduce CO2 emissions are coming through thick and fast as governments attempt to meet the targets set out in the Paris Agreement. This creates challenges for some sectors and companies, as well as opportunities in others that are part of the decarbonisation solution.
Investors not accounting for the changing nature of the political and regulatory agenda around sustainability may be caught out. There are a range of ways in which environmental, social and governance (ESG) information can be incorporated into investment strategies. Those looking to lean heavily into a specific theme may look to thematic strategies, for example. But in our view, ESG integrated strategies, in which the information is available and evaluated alongside other traditional financial metrics, will serve as a base requirement. Keep an eye on our On the Minds of Investors series for more information on the impact of sustainability on the investment landscape.