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Sustainable investments in a pandemic economy: turning problems into opportunities

By October 29, 2020One Comment

Sustainable investments have fared relatively well during the pandemic, so when it comes to ocean plastic pollution, how can we continue to turn problems into opportunities and usher our society into a place where doing the right thing yields a financial reward?

The impact of COVID-19 on our health and the economy continues to devastate with global GDP expected to shrink by at least 5.2%, according to recent figures by the World Bank. However, the turmoil presents a unique opportunity to build a more resilient and sustainable economy as ESG funds continue to outperform their non-sustainable counterparts.

Sustainable funds fare well amidst pandemic

Recently, sustainable fund manager, BlackRock made an unexpected discovery that during the height of the pandemic, in the first quarter of 2020, 88% of sustainable funds outperformed their non-sustainable equivalents. Similarly, investment researchers at Morningstar found that assets in European sustainable funds increased by 20% between the first quarter and the second quarter, while the overall European fund universe only rose by half that figure.

But why have sustainable funds performed better than their less sustainable counterparts? Some speculate that better ESG fund performance boils down to changes in the way we work and live. ESG funds tend to have a higher exposure to technology and healthcare – both of which experienced a massive boom as the demand for healthcare and homeworking increased. As opposed to non-ESG related industries, such as fossil-fuels, which took a nosedive as international air travel suspended.

Yet others suggest that better supply chain management and corporate governance makes ESG funds more resilient. A recent article in the Financial Times recalls that for companies to achieve high EGS ratings, they must account for their supply chains, staff practices and internal logistics –making them better equipped to absorb unexpected shocks. Investment manager BlackRock points out that sustainable investments are generally more transparent about the risks and opportunities companies face, allowing investors to better position themselves.

Whatever the reason, there is an overall consensus that this trend will allow us to rebuild a more resilient economy – one that is built on the understanding that our world is highly interconnected. As Fiona Reynolds, CEO at Principles for Responsible Investment affirms during a BlackRock podcast: ‘If you don’t have healthy people, and you don’t have a healthy planet, you can’t possibly have a healthy economy.” On the PRI blog, she continues:

“The pandemic has served as the first real proof-point for sustainability, underlining the fact that ESG investing doesn’t come at a cost, but more than that can future-proof investments and in some cases boost returns, all while helping to shape a better future.” 

However, Reynolds maintains that the private sector will have to play a role, as governments alone will not be able to cover the cost of the transformation that is needed.

More investment is needed to support waste management infrastructure

Although investments in circular economy related activities have been on the rise before the pandemic began, there remains a critical lack of investment in recycling waste and management infrastructure, which is the backbone of the circular economy.

Investments which will help increase the value of recycled materials such as plastics are needed both at home, but particularly abroad where ocean plastic pollution is a key issue. In countries such as Indonesia, the Green Investment Group, estimates that $18.4 billion is required to achieve adequate levels of waste collection, sorting, recycling, recovery and disposal infrastructure. 

The Ellen MacArthur Foundation predicts that investing in the plastic value chain presents a multi-trillion-dollar economic opportunity and a 9.3 billion tonne reduction in carbon emissions. Yet there are also great innovations on the horizon when certain technological advancements can be leapfrogged, suggested in a recent interview with Rob Kaplan, director of Circulate Capital. The bottom line is that investments in the circular economy is imperative to our future. 

“Now that we see the lockdown ending, and the recycling system is starting to re-open, has shown us that the time is now to invest, because these are the companies that we need not just to survive the pandemic – but thrive and come out stronger.”

Rob Kaplan, Director of Circulate Capital

Although there is much ambiguity about how our society and economy will evolve, the growth in sustainable investments looks promising. As the original aim of investing is a profitable return, we may finally be ushering our society into a position where doing the right thing yields a worthy financial reward.