Just a passing fad?

Is sustainable investing here to stay, or will it fade during the next big downturn? After months of trying out a trendy new exercise bike, our fixed income manager Noelle Cazalis thinks sustainable investing is here to stay.

Pair of trainers

I’ll admit it. I bought a Peloton.

Yes, a Peloton. Or more to the point, an expensive stationary bike with an even more expensive monthly subscription.

Previously a niche exercise bike company, Peloton sales boomed during the pandemic when everyone started working out at home.

To be honest, I never thought I would catch the bug. I’m more of a runner and enjoy nothing more than slipping on my running shoes and knocking out 10K in the hills. But those hills are busier these days, making my weekend exercise feel more like running the gauntlet.

Hence, the Peloton. It provides a great workout, but I’m still a runner at heart and something deep down inside tells me that maybe our time together may soon end.

That’s the thing about crises – they’re a good test of whether a new behaviour will be temporary or permanent. Going into the pandemic and the recession that it causes, sustainable investing was all the rage. But there were a few critics – there always are – who said it would be dead the moment a downturn hit.

This plays into the idea that when going gets tough, the majority of investors will only be concerned about generating returns in any way they can. But does this argument hold any water? A year after the COVID-19 pandemic first took hold, it seems sustainable investing has accelerated rather than stalled.

Assets invested in European sustainable funds increased by 52% in 2020, according to Morningstar. This isn’t surprising. When the coronavirus outbreak was declared a pandemic in early 2020, we all felt a sense that the world was about to become a much more challenging place. Not only was the business environment challenging, but millions of people suddenly found themselves unemployed or on furlough.

In a way, the pandemic exposed many of the inequalities in our society and it soon became evident which businesses were doing the right thing, and which were not. The traditional media, as well as social certainly made a point of exposing businesses that were seen to be taking care of themselves, rather than their own

Without these pressures, you have to wonder if anything will ever change. A lot has been said about younger generations being more turned in to climate change and social justice, but I am now starting to wonder if we aren’t giving other generations enough credit. If we didn’t have the Paris Agreement, the EU Sustainable Financial Disclosure Regulation and other bits of law nudging the investment world towards a greater focus on ESG, would it be happening at the pace that it is?

As a fund manager, I have long focused on sustainable investing and making sure I am doing the right thing with the money I invest. For much of my career I’ve felt like I’ve been in the minority, but the pandemic combined with one of the deepest recessions in living memory seem to have made the world stand up and notice the benefits of sustainable investing.

This may have been a coincidence given the wind has been blowing in this direction for some time. But maybe it was also the catalyst that we needed? While the jury is still out on whether the Peloton is here to stay, I think sustainable investing will soon become so widely accepted that it will simply be known as ‘investing’.