Sustainability themes present multi-year opportunities

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If we look back to the start of the year, climate change was very much at the top of the
investor agenda, said Charlie Thomas, Head of Strategy, Environment & Sustainability.
However, it’s fair to say that COVID-19 has knocked it off the top spot, and rightly so,
as it requires an immediate focus. Charlie has been asked by many clients whether this
means sustainability will be put on the backburner, but he doesn’t think the answer is
black and white.

In the short term, there have been some negative developments: power prices across Europe
are down significantly year-on-year, which is impacting carbon prices; there have been delays
in renewable energy auctions; the UN Climate Change Conference (‘COP26’) has been
delayed, and the venue has been turned into a hospital; and Trump is rolling back fuelefficiency standards. However, on the flipside, we’ve seen some positive changes too. For
example, the EU has made it clear that it will incorporate environmental issues and its Green
Deal framework into its COVID-19 recovery plans. In addition, lots of clean energy projects are
still being financed; China has delayed the phasing out of its subsidies; and there is still
ongoing M&A in the sector, despite the backdrop.

Once the current crisis abates, we will see the focus return to longer-term issues around
sustainability, and probably with a heightened focus on stewardship, in Charlie’s view. Inflows
for the sector have been positive, which shows that investors are still thinking about the longerterm landscape. There’s been wide dispersion in returns from the companies held in the
strategy’s portfolios so far, with some share prices up year-to-date, while others have been
hurt badly. However, Charlie believes it’s important to remember that many of the
environmental and sustainable themes can present multi-year, if not multi-decade,
opportunities. He and the team will look to take advantage of any underappreciated
opportunities that arise as a result of the recent market turmoil.