UK sustainable equity - backing responsible businesses emerging stronger from the coronavirus crisis
Insights

UK sustainable equity – backing responsible businesses emerging stronger from the coronavirus crisis

  • As the Covid-19 crisis unfolded, it became clear that the pandemic was bringing the S in environmental, social and governance (ESG) investing more to the fore.
  • We believe companies that invest in their people and products while delivering positive sustainable outcomes are better placed to achieve superior investment returns. Governments around the world are focusing their Covid-19 recovery plans on sustainability.
  • As we enter 2021 we have increased exposure to companies where underlying business models and growth opportunities remain intact and are positioned for sustainable success.
  • We see value in the wider UK market. There are plenty of sustainable global leaders in the benchmark, the FTSE All-Share index, which we feel is trading at too-wide-adiscount relative to other international indices. The certainty around Brexit should remove a key overhang for the UK.

There can be no doubt that 2020 was an unprecedented and difficult year for businesses and employees. As the Covid-19 crisis unfolded, it became clear that the pandemic was bringing the S in environmental, social and governance (ESG) investing more to the fore.

We kept in close contact with our investments, paying particular attention to the safety and wellbeing of employees. With some businesses suffering sharp declines in revenue and temporary closure of operations, our focus also turned to financial robustness such as liquidity, cashflow, working capital and balance sheets. We needed to be sure we are invested in companies with strong and sustainable business models that are going to survive the pandemic and to identify those that should emerge stronger with opportunities to gain market share.

A prime example is catering group Compass, which serves a broad range of sectors including healthcare, education, sports and leisure and offices. Though its businesses supporting hospitals, schools and key business remained open through the beginning of the pandemic, other areas were closed. Unsure how long the crisis would last and its severity, the company raised equity in the market as it wanted to emerge from the pandemic with a stronger balance sheet.1 This improved financial position should equip it to win contracts from failing rivals and positions it well for any economic upturn in 2021.

Another company well-placed is Smith & Nephew, the medical device maker. In April, it collaborated with the University of Oxford to produce ventilators to help the global effort.2 Elsewhere, however, sales suffered as many elective surgeries such as hip and knee replacements were delayed, leading to a derating in the stock price. The company has managed costs and cashflow well during the crisis, preparing it for a return in demand.

Sustainable businesses set for future success

We believe companies that invest in their people and products while delivering positive sustainable outcomes are better placed to achieve superior investment returns. Governments around the world are focusing their Covid-19 recovery plans on sustainability: green infrastructure, clean energy and electric vehicles. In the UK, opportunities will be thrown up by Prime Minister Boris Johnson’s 10-point plan for a green industrial revolution covering clean energy, transport, nature and innovative technologies.

In the UK, opportunities will be thrown up by Prime Minister Boris Johnson’s 10-point plan for a green industrial revolution covering clean energy, transport, nature and innovative technologies

We see opportunities for companies such as Johnson Matthey, which is a pioneering manufacturer of catalytic converters for combustion engines. As countries like the UK transition towards electric vehicles, there is likely to be rising demand for catalytic converters as emissions standards become stricter.

We are also interested to see how engineering and energy consultants John Wood Group performs as it makes a huge push into renewables. It is pinning its growth strategy on rising demand for offshore wind and green hydrogen, which it predicts will also revolutionise how homes are heated.

Sustainable opportunities in the UK market

Our defensive positioning in 2020 cushioned us from the worst bouts of market volatility. As we enter 2021 we have increased exposure to companies where underlying business models and growth opportunities remain intact and are positioned for sustainable success. This stance should underpin performance as consumer and business activity starts to return to normal and the green revolution continues apace.

As countries like the UK transition towards electric vehicles, there is likely to be rising demand for catalytic converters as emissions standards become stricter

We also see value in the wider UK market. There are plenty of sustainable global leaders in the benchmark, the FTSE All-Share index, which we feel is trading at too-wide-a-discount relative to other international indices such as the S&P 500 or FTSE Europe, where in both cases dividend yields are lower and price-to-earnings ratios higher. This is despite 77%3 of the FTSE All-Share’s earnings coming from outside the UK.

This stark anomaly provides a fruitful hunting ground for our fund managers, who are backed by one of the UK’s largest teams of investment professionals specialising in UK equities, as well as by an entirely independent and well-resourced responsible investment team.

19 January 2021
Sonal Sagar
Sonal Sagar
Portfolio Manager, UK Equities
Share article
Share on linkedin
Share on email
Key topics
Related topics
Listen on Stitcher badge
Share article
Share on linkedin
Share on email
Key topics
Related topics

PDF

UK sustainable equity – backing responsible businesses emerging stronger from the coronavirus crisis

1 Reuters.com, Compass raises 2 billion pounds as pace of recovery in question, 19 May 2020.

2 Infrastructure Investor; Q3 Fundraising Report 2020. https://www.infrastructureinvestor.com/fundraising-reports/

3 Bloomberg/Columbia Threadneedle analysis, as at 30 November 2020.

Important information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Related Insights

5 June 2023

UK equities: the song remains the same

Despite the cost-of-living crisis we believe the gloom overhanging the UK economy is overdone
Read time - 2 min
16 March 2023

Pauline Grange

Portfolio Manager

Identifying key sustainable themes for 2023 and beyond

The desire for energy security coupled with decarbonisation means there is now a sense of urgency around a green transition.
Read time - 3 min
3 October 2022

Richard Colwell

Head of UK Equities

Pep talk…the parallels between football and fund management!

Head of UK equities, Richard Colwell, on trusting in your process, why a valuation and sell discipline is key, and why he loves a 4-4-2
Read time - 5 min
26 March 2024

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot – March 2024

Our fixed income team provide their weekly snapshot of market events.
Read time - 5 min
26 March 2024

Ebele Conroy

Investment Analyst, Global Research

Joe Horrocks-Taylor

Senior Associate, Analyst, Responsible Investment

Green machines: the future of transport

The transportation sector has a significant impact on global emissions, but technology innovations, policy changes and shifting behaviours can reduce this. How are the different modes progressing?
Read time - 5 min
26 March 2024

Claire Robbs

Investment Grade Credit Research, Fixed Income

Chocks away! Airport passenger numbers – and financial metrics – recover

Increased numbers of fliers and supportive concession frameworks mean the industry retains a strong and steady credit trajectory.
Read time - 3 min
true
true

Important information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Our Capabilities

We offer a broad range of actively managed investment strategies and solutions covering global, regional and domestic markets and asset classes.