ESG Investing  

Covid is changing the way we invest

What is good for the long-term viability of our economic system and society can also lead to positive investment outcomes. As a result, investors are increasingly measuring company performance by more than just financial profit and loss. It is no longer about what makes a good stock but what makes a good company.

With regard to tackling Covid-19, investors do not need to make a binary distinction between impact and returns. Investors exposed to the healthcare theme in their portfolios have an opportunity to adapt to this global investment mentality shift and contribute to positive change.

These investors can enable growth in companies with current or projected net-positive impact and encourage improvement through active engagement with them. Concretely, this entails investing in innovative companies positioned for sustained above-average growth but whose products and services facilitate the access to medicines and health care services in both developed and emerging markets.

The question of lowering the cost of healthcare and medical patents will be of crucial importance in this area: how are companies balancing between protecting knowledge and the imperative of transferring knowledge and lifting costs in order to solve for global public health issues?

That is why, as part of their security selection process, investors should also formally engage with companies involved in developing vaccines or peripheral products and services with the objective to determine how their activities contribute to increasing accessibility and affordability, especially if these companies benefit from state financial support. 

At the end of the run, if the Covid-19 vaccines are not affordable and accessible, then they will not be sustainable.

These two “impact mechanisms” – enabling growth and engagement – are not mutually exclusive.

In fact, they should overlap as each company’s ability to generate a positive impact on society is evaluated as they attain their fundamental growth objectives.

At the same time, however, to avoid “impact washing”, candidates for portfolio addition must be evaluated to ensure potentially material risks to impact are identified and adequately managed, using rigorous ESG analysis.

Lastly, comprehensible impact reporting is particularly important. Investors must be accountable and transparent as to what their capital allocation has achieved or seeks to achieve.

A strategy or emphasis on environmental, social and gover­nance factors (ESG) may limit the investment opportunities available to a portfolio.

Therefore, the portfolio may underper­form or perform differently than other portfolios that do not have an ESG investment focus.

A portfolio’s ESG investment focus may also result in the portfolio investing in securities or industry sectors that perform differently or maintain a different risk profile than the market generally or compared to underlying holdings that are not screened for ESG standards.