Markets and sustainable investing during the coronavirus crisis: webinar
The COVID-19 crisis is providing evidence to support the case that more sustainable businesses - those which are well-managed in the interests of a range of stakeholders - perform better financially.
Companies do not operate in a vacuum, says Katherine Davidson in her presentation in sustainable investing and the Coronavirus crisis (for the full presentation, see above).
She argues the crisis has been crucial in highlighting the relationships that successful businesses have with a far wider range of stakeholders - including suppliers, employees, communities and the environment.
"We have long argued that companies don't operate in a vacuum," she says. "Never before has that felt as true as now during this crisis.
"We are witnessing possibly an unprecedented move away from shareholder primacy toward consideration of broader stakeholder relationships."
Successful companies are able to adapt to challenges and trends in the societies to which they belong - and the advent of COVID-19 is making this clear.
Why should sustainable companies outperform?
"It's not pure philanthropy that we invest sustainably - we believe there's a strong alpha opportunity here," says Katherine.
Companies which are run with regard to their stakeholders have demonstrable superior operational performance. "When I talk about those stakeholder relationships, I tend to describe them as 'corporate karma'," Katherine explains.
"Companies that neglect or exploit their stakeholders in favour of their shareholders in the short term, that's something that will ultimately come back to bite them in the long run."
She gives examples of companies underpaying their staff or cutting corners in terms of health and safety standards or environmental controls. These practices can result in higher costs, accidents, litigation or fines.
During the crisis, she says, many businesses have come under attack for their treatment of staff. Others have won praise for prioritising staff and customers' needs.
"The interesting bit comes when you think about market inefficiency. Our experience is that markets are incredibly short-term, and if anything becoming even more so. Markets are also remarkably bad at pricing non-financial factors such as company culture and corporate responsibility."
She says the crisis presents an interesting test case for this thesis. "We've seen significant outperformance since the market peak, with these stocks proving much more defensive."
Companies playing their part in meeting wider social goals
The crisis has seen many businesses repurposing their infrastructure to help enforce government policy. Alcohol producers, for example, are making hand sanitiser, and garment companies personal protective equipment. Supermarkets are enforcing government policy around social distancing and preventing stockpiling.
"These are all measures which would've been unthinkable a few months ago, in terms of the degree to which the public and private sectors have banded together."
Katherine Davidson cites Amazon as an example of the challenges of balancing competing stakeholder interests during the period of the crisis.
"It's not always easy to satisfy everyone, especially where there's a direct conflict. Amazon is often very contentious. On the positive side, Amazon has become a critical part of the logistics infrastructure. It has been one of the few websites that have had no interruptions, it has not allowed price-gouging and it's hiring an extra 175,000 employees - including workers from airlines and hospitality.
"On the other hand, labour standards have been a perennial issue with Amazon, and we've engaged with the company about 16 times in the past five years."
Market outlook, the prospect for dividends, and more
The presentation also includes a wider outlook for markets and the economy from Cazenove Capital's Chief Investment Officer Caspar Rock.
With Kate Leppard, Head of Client Service UK Wealth Management, Katherine Davidson and Caspar Rock go on to answer a range of investors' questions relating to the above topics - again these can be heard in the presentation above.
If you were unable to join this live webinar but would have liked to listen in and pose your own questions, more will be held in coming weeks. Please look out for invitations from your usual contact.
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