Coronavirus: The crisis could reshape investment strategies for the better
We are living through a period of modern history that very few could have imagined. Three billion people worldwide are in lockdown, the value of global commerce is being called into question as protectionism is on the rise, and financial markets are unsure what assets are worth. The world as we knew it has been turned on its head in the space of a few short months.
For many, it feels like this crisis quietly crept up on us, when in truth there was no shortage of warning signs. Shocking wealth disparities, underinvested healthcare systems, the steady rise of populism, the organised and commercialised destruction of biodiversity, and the increasingly visible effects of global warming are some of them. Whether ignorance on a grand scale or worse a deliberate and collective turning of a blind eye, we have largely ignored all these signals.
What we now realise – and perhaps it is one of the few silver linings to the COVID-19 crisis – is that governments and investors have a duty to deploy capital in a way that helps develop social infrastructure, reduce the wealth disparity between the richest and the poorest members of our society, and to ensure that healthcare systems are fit for purpose. Failing to do so after this pandemic runs the risk of higher unemployment over a long period of time, legitimising populist discourse even further, and creating societies that are exclusive, disconnected, and ultimately unsustainable.
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We have a once in a generation opportunity for change after this crisis passes, and together we must seize it. We must rethink our economic systems so that capital is allocated into long-term solutions and is properly focused on tackling some of the biggest issues of our time. It is a big challenge, perhaps without precedent, but it is far from impossible.
We have seen that within the space of a few days, developing economies – their central banks and governments – can mobilise quickly, efficiently and at huge scale. So far over $3.5 trillion has been injected into rescue packages that will save entire sectors from bankruptcy and protect millions of jobs. Similarly, most people are willingly isolating to help ensure the health of others.
So, what do we need to do?
In short, targeted investment with scale. We need investment that levels the social playing field and enables everyone in our economies by harnessing their various talents and ideas. Doing this means ensuring we finance our vital social infrastructure, which will have significant benefits for our hospitals, schools, transport systems, and our public facilities and spaces. This effort will advance education and skills development, accelerate job creation and inclusiveness, and improve peoples’ quality of life.
But this isn’t a new observation. In 2018, The High-Level Task Force on Investing in Social Infrastructure in Europe – a group created by the European Long-Term Investors Association – described social infrastructure as “a crucial instrument for creating inclusive growth” and argued that additional investment would improve European welfare systems, as well as repair political disaffection and distrust. We didn’t listen two years ago, but we must listen now.
Many responsible investors before this pandemic – and I count Candriam as one of these firms – had already developed investment strategies that directly tackled the social pillar within ESG investing. We now need to see more of these strategies paired with creative solutions to the biggest challenges in our societies.
One area of particular interest and expertise for us is healthcare. Since 2014, we have allocated over €3 billion towards companies that demonstrate innovation in healthcare with the potential to transform the sector, and by extension people’s long term health prospects. A dedicated oncology fund has, for instance, helped advance AI-assisted cancer detection and personalised medicine through genome sequencing, while also donating 10% of management fees to leading cancer research institutions. It has proved popular and successful so we will do more of this, and we expect others to as well.
In the wake of the COVID-19 crisis, these kind of investment strategies will become increasingly necessary to relieve the strains on health services throughout the world, but asset managers and investors must understand how important they really are. A report by the Institute of Fiscal Studies, an independent research institute, has already found that in the UK, pressure on the National Health Service (NHS) will “exacerbate existing inequalities in health across place and socio-economic status”. The study concludes that COVID-19 will influence current and future decision-making on how the UK can fund its healthcare system.
This crisis shows that we are collectively fighting a common enemy that does not discriminate against gender, age, geography or wealth. It is laying bear the starkest failures in our existing economic systems, whether in healthcare, education, biodiversity, or the climate. We are all at war when it comes to stopping this virus, but we are, mostly, well-equipped in the west to win.
Consensus from the investment community is that conscious capitalism is the way forward, we have recognition from policymakers and regulators that the status quo simply isn’t working, and critically, we have the support of many millions of people who are demanding change and action. This combination could be unstoppable.
Europe can lead the way in ensuring this rare moment does not pass us by. Governments have started to break free from their budgetary straitjackets and have agreed to pay for the economic losses incurred by the pandemic. Collectively financing an ambitious public investment programme would restore growth momentum after the pandemic. Above all, it would allow for the fairer allocation of capital towards projects aimed at preparing for a stronger, far more resilient future, whether that is addressing the wealth gap or tackling health inequality.
As part of this transformation governments will have to broaden their field of vision. They must redefine their growth targets and galvanise the financial sector. For decades, GDP and profits have been the major indicators of economic and corporate health, without considering other vital indicators like access to health or education, our general wellbeing, and the inclusiveness of our workforce. This must change and we will need to measure these elements with much more intent.
If we can get this change right, the legacy of the COVID-19 crisis will not be one of death and destruction, but instead the catalyst that inspired a wholesale rethink of our economic systems, accelerating our opportunity for a truly sustainable and inclusive future.