Video: How ESG investments have weathered coronavirus

• It will be a v-shaped economic recovery, says Ward
• Economists are studying different data points as lockdown shifts focus
• ESG investments are generally in a robust position to withstand the downturn

Transcript

Emma: Hi I'm Emma Wall and joining me today is JP Morgan's Karen Ward to talk about the outlook for the global economy. Hi Karen.

Karen: Hi.

Emma: So we last spoke, or least we last did a video in November last year, thinking about the outlook for 2020. I don't think anyone could have predicted quite how the first half would have turned out and therefore I would understand if you were reticent to give an outlook from this point but I do think it's important for us to talk about where we go from here, because there's a lot of analysis that's been done of what's happened to markets so far, but what are you thinking, as an economist, about the future?

Karen: I think you're right, no one knew there was a global pandemic coming but I think even if you were given that information would you have then said that by mid-year markets would only be down 10%? I'm not sure many would have forecast that and I think we have our global policymakers to thank for that.

I think what the market is expecting – the reason we've seen such a phenomenal bounce back – is the market is expecting that policy to have worked almost perfectly and therefore these bridges they've tried to build from one side of the virus to the other will prove entirely effectual and the economy will be bouncing back rapidly from here.

I'm a little cautious to predict things are quite so smooth. I would argue that it's going to be v-shaped by nature – it has to be after such a plunge – I just think the other side of the V isn't going to be quite so symmetrical largely because I think there will be some scars. There will be some unemployment unfortunately and that will take a little bit of time to work through, that will constrain spending, there will also be some debt.

I mean that's the only thing we probably really do know post-COVID 19 – we're coming out of this with a lot higher debt in the private and the public sector.

I don't think the public sector’s going to worry too much about paying it down – I think the floodgates of fiscal stimulus and Chancellors are enjoying their time in the sun. Everyone likes a Chancellor who spends money. No one likes the ones who take it away and I think they're not worried about debt anymore. So I don't think we're entering a new phase of public austerity but I think the private sector is going to have to work through some of that debt and that again is just going to restrain investment, restrain employment, so it's going to be a bounce-back, but I just think it's going to take a little bit more time for us to get back to that period of absolute normality.

Emma: And what key indicators are you looking at? Because of course here in the UK things like employment figures have been slightly greyed out by the furlough scheme whereas in the US today – on a day that the US has just announced new unemployment figures up again by another couple of million – what are you looking for either to confirm things that you're already thinking or indeed to sort of see those green shoots?

Karen: You're right we're in a whole new world of looking at completely different data sets. So one of the things we're providing for our clients, for you, for anyone who would like to take a look on our website, is some of this new real-time information. We’re tracking the level of activity so mobility data, how are people moving around and where are we relative to normal, relative to where we were before and how does that differ for different parts of the economy. So we can see that people are feeling happier about moving around, we've seen mobility actually pick up substantially but it's going to parks – it's not going back to restaurants you know we know that that's going to take a lot more time before social distancing really ends.

So we have totally changed the data we're looking at, but then we are still digging through some of that labour market data, trying to understand whether it is permanent unemployment – but you're right it's a very unusual situation and the data that we're focused on is different.

Emma: One of the things that we've talked about before that I know you looked at previously were things like commodity prices.

Obviously the oil prices had an exceptional journey over the last couple of months triggered by coronavirus but then exacerbated obviously by the indecision between Russia and Saudi. How are you interpreting things such as those, such as commodity prices, into your analysis?

Karen: Yes, I think you're right – it was part of the story because of the demand contraction that we saw but then overlaying that you had those additional complications as those key producers, and the discussions between them broke down.

I think with regards to the oil market itself, when we do see the recovery we just don't think it's going to be back to normal by the end of the year. So as demand recovers then that will start to feed into, I think, the higher oil prices. Also I think that the big producers which have clearly not been able to agree on supply reductions, that will have to change over time – none of those can sustain low oil prices for a significant period of time, because they need the income whether that's for their government spending programs or just broad breakevens. So I do think we will see oil prices move a little bit higher.

That being said I think about the sustainability, focus on climate change, the idea of seeing oil prices back above $70, I think those days are long behind us.

Emma: You mentioned climate there and ESG one of the things that I think is quite interesting about a period of time, a series of events such as the one that we're going through at the moment is they can either interrupt or indeed accelerate global themes and trends.

What are you seeing in terms of demographics ESG that the coronavirus is impacting?

Karen: Yes well I think actually it's on the 'E', the 'S' and the 'G' we've learnt a lot about the importance of company level screening.

So for example you know governance – companies that have been well run, that that have maintained good balance sheets that we then categorise as ‘quality companies’ have performed in this recession, so good screening on good governance I think has demonstrated that those companies deserve a premium and will continue to.

I think there will be some significant social dimensions on how companies treat their employees through this crisis and then how that translates into a broader brand recognition and I think that's going to again intensify.

Then with regards to the environment I think many people sort of assumed, well this probably puts climate change on a back burner because if we suddenly all can't move about and get in planes and go in cars then maybe you know it's less of a focus. I don't think that's right either, I would say that the focus and the agenda is still very much there and, in fact, what this crisis has done, as I said one of my key points is that governments aren't worried about debt anymore, so that they're happy to spend money left, right and centre and therefore the infrastructure they were planning to move to transition our economies to zero carbon I think that agenda will accelerate as well.

So I think it has demonstrated the worth of screening on these categories and I think that only exacerbates a trend we've been highlighting which is further appetite for these kind of ESG screen funds.

Emma: I completely agree because anecdotally I remember the last recession, the global financial crisis - ethical investing was still really relatively new and what happened in 2008-2009 knocked it from the agenda in terms of things that both individual and professional investors were talking about whereas actually the spotlight seems to be shining brighter during the last three, four months on ESG it hasn't knocked it from the agenda at all. In fact it's brought it up the agenda.

Karen: Exactly.

Emma: Karen thank you very much.

Karen: Thank you.

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This video and any comment on individual companies is not personal advice or a recommendation to invest. If you are unsure about the suitability of an investment please seek advice. Investments and their income can fall as well as rise in value and you could get back less than you invest. Past performance is not a guide to the future.

The views in this video are those of Karen Ward and may not be shared by Hargreaves Lansdown.

Views correct as at 08 June 2020.

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