Liontrust Sustainable Investment Annual Review 2021 - Flipbook - Page 36
2020 investment outlook
Looking to a new decade
(and celebrating the last one)
PETER MICHAELIS
My original outlook piece, written in January, held positive
predictions of how our societies would develop over the coming
years. It explained that the sustainable trends making our
environment cleaner, our quality of life better and our societies
more resilient would continue, and that companies linked to these
positive currents within our economy would prosper.
Updating my outlook in early April in the midst of the Coronavirus
crisis, with its dreadful human cost and unprecedented economic
impact, this optimism about the future might seem misplaced.
Within the past few weeks, country after country has gone from
business as usual to full lockdown. Governments and central banks
have had to intervene to support their economies and people,
trashing any notion of ‘small government’. Hard ethical choices have
had to be made: from doctors deciding who gets intensive care
and who does not, to world leaders trading off economic damage
against lives saved. Deserted streets, closing businesses, mass
unemployment and a rising death toll are a very harsh counter to any
positive view of 2020 and beyond.
This crisis has revealed both the interconnected nature of our world
and also how vulnerable humanity and our way of life is to an
external shock. One small strand of replicating protein has brought
the activities of the most
successful species on
the planet to a near
standstill. It has also
revealed just how
dependent we are on
the things we often
take for granted: first
and foremost, an
effective healthcare
system with doctors,
nurses, and scientists
protecting us from
disease. After that
come the benefits
of a well-
36 - Liontrust Sustainable Investment: Annual Review 2019
functioning economy, providing the employment, products and
services we need; freedom of movement to congregate with family,
friends and colleagues for leisure and work; global trade. The list
goes on.
And yet on reflection I still believe we should be optimistic about the
future. The crisis is terrible but the response shows just how we can
overcome this challenge through co-operation, applying ingenuity
to positive ends and investing in businesses to deliver a positive
impact. There are stark parallels with how we have to deal with the
challenges of the climate emergency, loss of biodiversity on land and
sea, and sharing prosperity more widely and more fairly. I believe
that, after we have suppressed this pandemic, we will intensify our
response to these challenges, underpinning the sustainable trends in
which our funds invest.
For this reason, we include here my original outlook article, in spite of
it not mentioning Coronavirus, because it is, to our minds, still valid.
Before our thoughts turn to what the 2020s will hold, we should
pause and celebrate the 2010s: in many ways, they were the best
decade humanity has ever had. Judged by improvements in levels of
poverty, disease, war, education and democracy across the world,
there has never been a decade like it; we found ways to dramatically
improve quality of life, increase resilience and do much more with
fewer resources.
These macro trends are positive, powerful and predictable. While
they often get lost in daily news that seems to need the drama of
disaster, destruction and doom to get readers and listeners, the real
stories of the past few decades are much more positive. And it is
these macro trends that have enabled us to deliver superior returns
by investing in sustainable companies.
Second is health. The long-term picture is clear: in the last 100 years,
child mortality has fallen from one in four dying before their 5th
birthday to fewer than one in 200. Again, this is a 20 to 40 times
improvement (in the UK, US and China) and progress continues:
even in the last 20 years in the UK, it has improved by 30%.
Finally, the riskiest thing we do every day, which is getting in our
cars. Since the 1950s, when mass car ownership took hold, road
deaths have fallen 70%; this is in spite of a 10-fold increase in miles
driven, so another 30 times improvement per km driven.
What these three dramatic improvements share is the same
mechanism of delivery: society demands change and governments
act to regulate for clean air, safer cars or better healthcare.
Companies then do what they do best: competing and innovating
to grow profitably – delivering the catalytic convertors, the vaccines,
and the airbags that improve our world.
We do not want to come across as naively optimistic about the
state of the world. There is still a huge amount to improve and
the challenges of halting climate change, biodiversity collapse,
eradicating poverty, and providing fulfilling employment and lives for
all are daunting. All of these require huge improvements in the way
we do things but, to reiterate, the most likely way of solving them is
through the same mechanisms we have used before.
This means these macro themes will continue through the next
decade, and the story of businesses delivering strong growth and
profits while improving our world has a long way to run.
In the space of just under a decade, this outlier became the solution
— the cheaper, cleaner and quicker motor car. If you look at a photo
of New York streets from just 10 years later, there is barely a horse
to be seen. Change can be non-linear.
These are a few examples of powerful trends we should celebrate.
In general, our world has got much, much better in the last 20 years.
Many of these improvements have been achieved with the help of
ingenious, efficient businesses whose profits have grown in line with
demand for their solutions.
Importantly, if you judge the future by assuming it will look much
like the present, you risk being very wrong. Instead, we believe it is
important to look at the weaker signals, the single car-like thing in the
1901 photo, and imagine ‘What if…?’
All this leads to our investment philosophy, which is that most investors
underestimate the power and predictability of positive trends and the
growth prospects of sustainable companies aligned with them.
As we said at the outset, the Sustainable Future fund range launched
in February 2001 with the primary aim of delivering strong returns to
our clients by investing in sustainable companies and we continue to
have a strong track record of doing so.
Our clients know they are providing capital to these sustainable
companies, accelerating the improvements they deliver – and
doing their part in making the 2020s another best decade ever
for humankind.
Let us look at another characteristic of these positive transformations:
they do not always happen slowly. Nowhere is this truer than the
story of transport in New York. In 1901, the city was full of
horses and each of these was producing 10kg of
droppings a day. When it rained, the roads
were a river of effluent; when dry, there
were clouds of dust and a plague
of flies. A photo from 1901
shows equine-filled streets
and just one odd
looking vehicle.
First, the air we breathe. In UK cities, the air is cleaner than it has
been since the beginning of the industrial revolution. If we look
at PM10 pollution levels in London – with long exposure leading
directly to lung cancer and pulmonary disease – back in 1992, it
was at moderate or high levels for 1,500 hours a year. Now, it is
20 times lower, which is still not perfect but much improved. Progress
also continues with the move to hybrid and pure electric vehicles.
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