We expect that the pandemic will bring new topics to the fore of ESG investment. We see biodiversity as the next major issue in the sustainable investment space.
Here Etienne Vincent offers his thoughts on the key factors driving the investment environment in 2021.
We see the sector and style adjustments that started in 2020 continuing throughout 2021.
However, in the US, another rotation between styles and sectors could be sparked by either the new Biden administration’s policy decisions or any unexpected developments in the pandemic. This is compounded by historically high valuations and ongoing uncertainty about the stability of the post-pandemic economic recovery.
In Europe, valuations are less stretched but the departure of Angela Merkel, Brexit, and other political instabilities could generate hiccups during the recovery of some sectors, in particular financials.
Across the board, the increasing importance placed on ESG and changes in consumption habits should also increase divergences between sectors – which we see as an opportunity.
The Mainstreaming of ESG
To a large extent, 2020 has been the first reality check for ESG investing. Although awareness of sustainability and climate issues has been steadily growing for a few years, this shift occurred during a relatively calm period for markets. 2020 made clear that ESG can have a significant impact on investments’ risk/return profiles across all asset classes.
We expect this trend to continue into 2021. A deeper understanding of ESG will highlight the increasing role quantitative investing has to play in determining the construction of a sustainable portfolio. This is compounded by the increasing detail and granularity of ESG data, which leads to more accurate and predictable quantitative models.
We also expect that the pandemic will bring new topics to the fore of ESG investment.
We see biodiversity as the next major issue in the sustainable investment space.