Fund managers and CEOs in the UK and Europe share their outlooks for different themes aimed at supporting the planet and society
Regulation
Alex Game, ethical officer, Unicorn Asset Management
Regulation will play a role in accelerating the adoption of ESG within the UK. The Task Force on Climate-related Financial Disclosures will require full mandatory climate-related financial disclosure for UK companies by 2025 and some reporting requirements beginning as early as 2021.
In all likelihood this will be followed by further regulation, which will serve to increase pressure on companies to continue improving their disclosure and ultimately their accountability.
Sacha El Khoury, director, global equities, BMO Global Asset Management
Global action to combat Covid-19 this year has been unprecedented. Now we must deal with existential crises that are unfolding over much longer timeframes yet require a similar urgent and unified approach, such as climate change, resource constraints and ageing and growing populations. Regulators, governments and corporates are finally mobilising and we see this momentum building in 2021 and beyond, with Europe leading the way.
Regulation in Europe has only intensified since European Commission President Ursula Von Der Leyen proclaimed that the EU Green Deal would be Europe’s “man on the moon moment”. The deal aims to reach carbon neutrality by 2050, making Europe the first climate-neutral continent. The pandemic reinforced support for the deal, leading to a recovery plan focused on green investments and digitalisation. We believe this regulatory tailwind will intensify in 2021 and beyond.
For example, the Paris Agreement requires all buildings to be net zero carbon by 2050, but less than 1% are today. Companies like Schneider, the global leader in buildings’ energy transition and automation, offer solutions to this challenge and will ultimately benefit from the intensifying regulatory backdrop. While environmental issues remain a priority, we expect social issues to also take centre stage.
Governance
Matt Evans, manager of the Ninety One UK Sustainable Equity Fund
An increased focus on the quality of management and how the requirements of all key stakeholders are met will give businesses a better chance of successfully coming out of this challenging time, and companies with motivated and well-trained workforces are likely to emerge on the front foot. It will be necessary for businesses to carefully assess their labour policies and practices as well as commit to managing, training and supporting staff as we look ahead to a transformed working environment.
What’s more, with the economic outlook anything but certain, preparing young people for a structurally shifting working environment and supporting on job creation will land at the feet not just of governments, but UK companies as well.
Diversity and inclusion has been a key area of focus for businesses this year and we can expect closer scrutiny of companies’ records and policies in 2021. What comes next is likely to go beyond asking whether businesses have achieved industry-average levels of diversity, but demanding leadership, new thinking and advances in best-practice.
See also: – Outlook 2021: What’s next on the D&I agenda?
René Møller Petersen (left) and Frederik Nøkleby Weber portfolio managers of the Nordea 1 – European Stars Equity Fund
Even though European corporates may be ahead of global peers in the ‘E’ component of ESG, there is still work to be done – especially in relation to the ‘S’ and ‘G’. For example, there are many examples of companies with combined CEO and chairperson roles, while we often see European companies lagging international peers in terms of gender diversity. In addition, Europe is home to many conglomerates that have displayed poor capital allocation decisions.
This is where engagement and investment flows can make an impact in driving corporates in a more sustainable direction – while also boosting the return potential of a company.
German company GEA Group, one of the largest technology suppliers for food processing, is a good example of this. The company had grown sustainably through acquisitions, but profitability lagged due to integration issues. ESG-related metrics were also declining, such as in its high labour turnover, which resulted in falling employee satisfaction. Along with fund manager Elliott, we began an engagement process with the company in 2017 and took it all the way to the board the following year. A new management team was installed in 2019 to improve integration and get the company back on the right track. We recently had a follow up meeting with the new management team, and we are seeing promising signs.
Growth
Nicholette MacDonald-Brown, head of European blend team and portfolio manager, Schroders
We hope 2021 will be the year that shows sustainable investing is not simply the same thing as quality growth investing. Quality growth companies tend to have consistent returns and this consistency has been prized by investors in recent years. As the economy strengthens in the wake of the pandemic, there is scope for cheaply valued companies to generate better returns. These kinds of companies can also be sustainable investments particularly if we, as investors, engage with them and help to effect positive change.
