2020 was the year investors ‘came off mute’ on matters of climate change and social justice

The co-founders of Generation Investment Management reflect on 2020 and look at the ESG topics that will shape 2021

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‘You need to come off mute’ was perhaps the defining phrase of 2020, as people battled with the technological challenges of keeping the world of business moving. 2020 was also the year in which investors finally started to ‘come off mute’ on matters of climate change and social justice. 

Psychologists have long believed that in times of fear our horizons tend to compress: we worry about what is immediate. Yet despite all the fear we experienced during 2020, our horizons may have actually lengthened last year. Most companies raised their ambition on climate, gender equality and social justice. This augurs well for sustained action.

In addition to Covid-19 and the Black Lives Matter movement, however, 2020 was packed with less-noticed yet still critical developments for the sustainable investment industry. 

The climate crisis 

Things are very different from 12 months ago. China’s announcement of a 2060 Net Zero goal was a hugely significant moment. There are some concerns around this goal, particularly when it comes to the support of coal, but an optimist would say that this marks a turning point in our hopes of achieving the Paris Agreement’s objectives. 

On the corporate side, Microsoft’s climate goal sets a new benchmark for corporate ambitions. The company has pledged to not only be carbon negative by 2030 but to remove all the carbon it has emitted since its founding in 1975 from the environment by 2050. This is sure to influence the behaviour of other companies. 

Board matters

For business, discussions in the board room took a different tone in 2020. 

In the US, Nasdaq moved to require companies to have at least two ‘diverse’ members on their boards or risk their listing. This is not a particularly ambitious target, but it is pleasantly surprising to see a US exchange follow other parts of the world in setting guidelines for board diversity. 

Meanwhile, boards of the biggest companies in the US watched with great interest ExxonMobil’s removal from the Dow Jones Industrial Average, the index it first joined in 1928 and its oldest member. In August it was replaced by Salesforce.com, in order to “add new types of businesses that better reflect the American economy”. This marks another milestone in the rising cost of capital for polluting industries and means Chevron is the sole remaining oil and gas company in the DJIA.

Healthcare advancements

In healthcare, 2020 will go down in the history books for so many good reasons, not least the speed with which Covid-19 vaccines were developed, approved and distributed. But other developments caught our eyes too. 

In August, the World Health Organization certified Africa as being free from wild polio. This advance brings the world a step closer to eradicating polio worldwide, and it represents a triumph for smart philanthropy, global collaboration and perseverance. 

Google’s artificial-intelligence arm, DeepMind, announced it may have partially solved one of biology’s biggest challenges – how proteins fold. This is done by using deep learning techniques with a unique ‘attention algorithm’ to accurately predict protein structures based on a given set of amino acid sequences. DeepMind’s advances have the potential to revolutionise the process of drug discovery and will lead to a better understanding of how proteins interact with each other. 

Psychologists have long believed that in times of fear our horizons tend to compress: we worry about what is immediate. Yet despite all the fear we experienced during 2020, our horizons may have actually lengthened last year.

Another significant advancement was in the area of liquid biopsy. At present, most cancers are only detected after people experience symptoms such as pain or bleeding. But it has long been known that before the onset of such symptoms, tumours shed genetic information which circulates in our blood. Researchers have dreamt of being able to identify this information as a means of early detection. This dream is inching towards reality. In 2020, GRAIL and other companies released data suggesting they can detect 67% of the 12 most lethal cancers. We are watching these developments closely, as this early detection method offers the possibility of saving several hundred thousand lives a year and improving the quality of life of countless other individuals. 

Trade like it’s 1999

Private investors are back in the market en masse. Our best estimate is that the trading frequency for private investors is up to four to five times the average for the past decade. It is unclear whether this is a result of (i) a decade-old bull market; (ii) the lack of sporting activities on which to bet whilst homebound; or (iii) the growing availability of commission-free trading. In any case, seasoned market observers recognise active private investor participation as a potential warning sign for future returns.

Time waits for no one 

Where will 2021 take us? Judging by the advances of 2020, even during a global pandemic, there is optimism to be had in meeting the challenges facing us.

With COP26 taking place in Glasgow later this year, governments and companies will be setting their sights on starting to execute their net-zero plans. This transition will be one of the biggest transformations in economic history, and everyone has an important role to play. It transcends all sectors and industries and those who were once mighty and powerful may quickly become weak and irrelevant. 

We expect to see transformational – not incremental – action this year across sustainability trends. We believe that businesses, governments and investors have the potential, and obligation, to effect real change now.

Miguel Nogales and Mark Ferguson are founders and Co-Chief Investment Officers of Generation Investment Management