Covid-19 has hastened shifts that were naturally taking place, providing us all with pointers on where we should be allocating our investments. Online delivery of retail, healthcare and provision of education have leapt ahead. Sustainable tourism and the need to travel have become very real issues, as has the provision of flexible working arrangements.
We are also seeing how the significant overnight reduction in demand for power during lockdown is accelerating the closure of fossil fuel power stations that had otherwise been allowed a few more years of life. These shifts in the way we work and live will put pressure on certain traditional infrastructure and real estate models, while opening new opportunities for others.
Our enforced period of lockdown has given society the time to take stock of what’s important in our lives. The sustainable balance between economic activity and social wellbeing has been brought to the fore.
We are also bearing witness to the first sizeable reduction in greenhouse gas emissions in decades – well beyond the reductions experienced in the global financial crisis – proving to all of us what we already knew in our hearts: that it can be done. I believe that this will put even more momentum behind the principles of sustainability that underscore environmental, social and governance criteria. Members of pension schemes will want to know that the correct balance is there. Insurance companies will want to know that risks to long-term viability of an investment have been thought through.
There has been a massive immediate response by governments throughout Australasia, Europe and the US using taxpayers’ money to support those forced to stay at home during lockdown. But as these societies return to work, we are going to start to see that not every business will successfully rebuild.
Of course, there could be a second wave of the virus, which will add an even greater burden. As the cost of support measures increases, the political will to bail out unsustainable or carbon-intensive industries will be tested. And of course, banks will themselves have to look closely and objectively at which assets to stand behind. I know personally how a seismic shift can hasten choices such as these, having presided over landfill investments at one stage of my career during the last financial crisis.
Looking to opportunities, people will still want and need to congregate in order to work, learn, socialise and be healthy. They will want dependable methods of transmitting data and delivering goods. And underpinning all of this, they will still need power and heat. It’s just that the method of delivery is shifting – faster than any of us could have imagined just five months ago.
In my area, in the immediate term, renewable energy has remained relatively resilient. This has particularly been the case in Europe, where it is called first for production in the merit order ahead of fossil fuel power and where long-term contracted revenues provide a degree of certainty. As an investment asset class, renewables have become even more front and centre as a solution to tackle the other crisis: the climate emergency, which hasn’t gone away.