He says: “Technological improvement is a critical enabler of the transition to a more sustainable global economy.
“Firms are able to achieve often quite profound efficiency improvements by harnessing such innovations, including rising productivity, more operational flexibility, lower energy consumption and reduced waste.
“This is increasingly being recognised by equity markets, with common outperformance for well-positioned firms appropriately utilising such technology.”
Tech here to stay
David Harrison, who runs the Rathbone Global Sustainability fund, says: “We view technology as a key driver of sustainability in the medium and long term.
“Sustainable technology companies represent a significant exposure in our fund. Every business will continue to become more digitally focused and we believe it is still very early in this process. Areas such as design technology play a pivotal role in reducing waste, carbon emissions and improving safety.”
He notes one area is in automobile testing – by using automation better, car manufacturers can reduce the need for physical crash tests.
Mr Harrison adds: “Quite simply, technology is driving change in all industries.”
Cash flows
Michael Crawford, chief investment officer at Chawton Global Investors, says: “The value of an equity is based on the future cash flows generated by the underlying company with the majority of that value comprised from flows many years into the future.
“If the trajectory of those cash flows is perceived to fall or rise, it will have a significant effect on the current share price. We have already seen the impact of this on the values of fossil fuel producers where cash flows may decline materially.
“In contrast, companies with technologies that enable energy efficiency are increasingly considered to have greater longevity and growth, resulting in perceived rising cash flows.
“This can be the case even where the actual technology deployed by companies is equally advanced.”
Many companies, particularly in the technology sector have benefited from the low interest rate and benign economic conditions for much of the decade prior to the Covid-19 crisis, and while interest rates have subsequently been cut further, the availability of capital for loss-making or early stage companies is likely to be constrained by the deteriorating economic outlook.
Colin McLean, equity fund manager at SVM, says the present crisis will have a negative impact on all sorts of companies with high levels of debt, but adds the political and societal change that will come as a result of the virus will be beneficial to sustainable companies.
He says: “Stock markets will help with refinancing distressed listed companies, and banks will feed finance to badly hit small and medium-sized businesses in the broader economy.”
And, as the job of incentivising sustainable business structures is a political one, there will soon be the opportunity to make change.
