Only occasionally do I hear a car on the road; it is beautifully quiet and the birds sing without having to compete with the noise of everyday life.
It has been like this now for a couple of weeks and is likely to stay this way until June at least. Covid-19 has brought the world to a standstill, well almost.
A major pandemic had long been predicted, but when, where and how it would strike was impossible to say. It seemed to be the stuff of TV serials, not real life.
People I have spoken to have commented that today is what life must have been like in the 1930s and 1940s: shopping locally, no cars and much more community spirit.
Key points
- Covid-19 will have a huge impact, but there may also be some positives
- Sustainable investing has held up well during the crisis
- ESG may become centre stage
It seems we love to look back to a time when our communities and society were strong, which largely got washed away in the drive for globalisation and individualism.
Covid-19 is taking a terrible toll and will leave a very deep and lasting impact on us, but I am optimistic it will also lead to many positives.
Perhaps we are getting a glimpse of the shape of things to come as the world moves towards a sustainable economic future.
There have been numerous media reports about the drop in pollution – satellite images from around the world show air quality is much improved.
Where I am in Bristol, pollution levels have fallen by 40 per cent, and the air is noticeably cleaner – most of which is down to a reduction in traffic.
This plays into a major theme running through environmental, social and governance investing – the decarbonisation of the economy.
A visible aspect of this is the electric vehicle replacing combustion engines. The drive to electric vehicles is very much under way, but this period of lockdown could well add extra impetus to this move.
Power generation is another area where change is progressing well.
In 2019, 75 per cent of new power capacity built worldwide was renewable, and with the UK experiencing nice weather recently, some households on renewable tariffs are being paid for the power they generate.
Whatever the economy does, the sun still shines and the wind still blows.
ESG resilience
A question I have been asked a lot recently is whether ESG investments have performed better than those without an ESG mandate.
There have been numerous reports indicating this is the case. In fact, one from MSCI indicated a marked performance, and it is not difficult to see why this might be.
Oil and gas is a major sector that ESG funds tends to avoid, and with the oil price having fallen so sharply, it has not been a good sector to be invested in.
ESG funds can also be light on their exposure to consumer stocks and airlines, areas that have been hard hit in this market sell-off.
Looking at positives, it is also reasonable to assume that the quality of corporate governance in stocks that are held in ESG funds is high and as such makes them more robust in difficult economic conditions.
Sectors that have been quite resilient have been technology and healthcare, two areas in which ESG funds find a lot of stocks. They both benefit from recurring revenues, potentially making their business models more durable.
However, I feel that it is too early to really draw firm conclusions. Only when markets and the economy begin to recover will it be possible to say whether ESG has outperformed, but the early signs certainly look encouraging.
It has been fascinating to see how some stock prices have moved.
I have already mentioned renewable energy, and one easy way to get access is through investment trusts.
These are physical assets, with secure long-term income streams that require relatively little hands on day-to-day management – a positive in lockdown.
During the panic sell-off their share prices fell by approximately 30 per cent, but have since recovered quickly and now sit approximately 5-10 per cent below recent peaks.
While there are a number of factors at play, it hopefully reflects the quality of these assets that are very useful building blocks in ESG portfolios.
Looking to the future
The damage to the global economy will be extensive and people will need and want to get back to work as quickly as they can.
Many will have been made unemployed and not helped by the gig economy in which worker rights are few.
While government support packages are designed to help businesses through this period, just how well they will work we simply do not know at this stage.
The economy, I think, has the propensity to bounce back strongly, but it is also an outstanding opportunity to use financial support packages and central bank help to push for more sustainable business models and to invest in environmental sectors.
In time, as we emerge from lockdown as Covid-19 recedes, I am hopeful that ESG will become more centre stage for investors – a key aspect of it is ‘social’, how companies interact with society and treat their employees, including those in the supply chain wherever they are in the world, and this is very much under the spotlight.
One thing Covid-19 has done is bring people together; life has been put ahead of the economy.
If these sentiments continue, we may be witnessing a fundamental change in what society values most.
Tim Cockerill is investment director at Rowan Dartington
