It has been a tumultuous year for the global economy and the markets, but also a year in which our approach of investing in quality companies that have strong and sustainable competitive positions in good and growing markets, with strong managements and solid balance sheets has been validated by the returns they have been able to generate.
The past year has reinforced our conviction that sustainability, quality and value are closely linked and that we should think about our investment approach in terms of triple sustainability, or even better Sustainability³ – a company that achieves a high level of ESG sustainability should strengthen the sustainability of its competitive position and improve its prospects for generating sustainable value over time. It is a concept that is integral to our investment approach and that we should perhaps seek to register as a trademark…
Our investment insight this month discusses how we put into practice the ESG process we have integrated into our investment approach and provides information on some of the outcomes. You can read it by following the link here or by clicking on the attachment.
The Oxford University Business Economics Programme is producing a series of lectures on the Economics of Post-Crisis Recoveries that we are proud to sponsor. We had an opportunity to discuss lessons from the pandemic with members of the Economics faculty and it was interesting to note the extreme dichotomy of impact Covid-19 has had on people, companies and economies.
Those who have been able to work because they are part of the “Zoom-economy” have been able to maintain their incomes and increase their savings, while those who have been directly impacted by the closure of businesses have had to rely on government income support. Big companies like the ones we invest in have come through the crisis with their businesses intact while smaller businesses have struggled. The sales and earnings reported by many of our companies have been astonishing in their resilience, and even where they have been impacted by issues like the slowdown in consumer spending or the closure of hospitals to elective procedures, their competitive positions have been strengthened by the troubles of their smaller competitors.
We said as part of the conversation that our outlook continues to be positive as the vaccines are rolled out in the US and in Europe and countries can begin to take back measures to contain the virus. The dichotomy we described means first of all that we expect a significant rebound of the service economy as people go out and consume the goods and services they have been unable to for so long. The immediate employment effect will set off a virtuous cycle as people gain income and visibility.
It also means however that we will have to be sure to put in place measures to benefit those who have been impacted to enable them to find employment where their companies have shut down, to receive training where their jobs have been permanently displaced by the disruption that has accelerated because of the pandemic, and to provide education for the children and students who have not been able to learn remotely because their schools and universities have been unable to provide the necessary education or their circumstances have made it impossible for them learn. Some of those effects have taken place but others are yet to come as businesses may become unsustainable without government support or rent and interest holidays.
We are optimistic by nature and by conviction so we prefer to see the opportunities to create business and employment by business embracing the shift from off line to online, by workers benefiting from the efficiency of online access and remote working, and the need to increase capacity in the many areas exposed by the pandemic, including important areas that cross the private and public sectors like health care infrastructure and care homes, social services, education, and as capital investment accelerates in communications and renewable infrastructure.
As we look forward to such opportunities however, we have to be cognizant that these are great challenges, because the dichotomy of impact risks exacerbating the real and perceived inequality of income, wealth and opportunity that has driven so much of our political and social dischord. Sustainability also includes sustainability of governance and politics, and the UN Sustainable Development Goals apply as much to the US and to Europe as they do to other countries. Sustainability³ is key and it is important that we seize the opportunity to achieve better outcomes for all.