Covid-19: An unexpected catalyst for a lower carbon world

DIGITALISATION is a trend that we believe is aligned to a sustainable economy, and while the move towards a digital economy has been an important theme for the last few years, the Covid-19 pandemic has significantly accelerated the transition.

Economic activity has started to rebound in several markets as lockdown restrictions are gradually lifted. However, the mixed success of the easing across the globe serves as a reminder that it will not be an easy process. Sectors such as retail stores, restaurants and in-person entertainment will continue to struggle until more normal activity levels resume.

Conversely, the digitalisation trend has accelerated. And while the "digitalisation of everything" is not new, the crisis has certainly highlighted the developments that have already been made. It is a structural shift that has been happening for a long time, now spurred on by the crisis, and we believe that it is key to reaching a sustainable economy.

Digital platforms spurred on by the crisis

Microsoft CEO, Satya Nadella, recently summed this up well in his April earnings call this year, stating that the company experienced "two years of digital transformation in two months", and the figures tell the same story. In March alone, the Microsoft Azure blog reported a 775 per cent increase in cloud computing usage in regions with social restrictions and a spike in Microsoft Teams users, with 900 million minutes of meetings and calls made in a one-week period (as at March 28, 2020).

This is just the tip of the iceberg in terms of digital uptake. From online groceries to telemedicine to remote working and virtual classrooms, many people will have experienced digital platforms for the first time.

But are these platforms powerful enough to sustain a lasting change in customer interaction once the crisis abates?

It is our belief that companies that enable greater productivity and a more efficient use of the world's precious natural resources will succeed over the long term. We consider digitalisation and sustainability to be two sides of the same coin by empowering people and businesses to work, live and succeed effectively without the need for an excessive carbon footprint. If any good has come out of this crisis, it is that it has served to underline the idea that many people are able to lead lower carbon lives effectively.

Some sectors fared worse than others in the crisis - namely travel, transportation and heavy industrials. Airlines and cruise liners ground to a halt and were among the most severely affected as social distancing measures and travel bans were enacted across the world, with global air traffic dropping by 65 per cent in the one-month period to April 7 according to a snapshot of flights in the air by flightradar24.com.

While lockdown has exposed the weaknesses in this industry, we believe that it has only accelerated an already existing, and in our opinion unstoppable, transition to a low-carbon economy as new technologies develop and the regulatory burden associated with carbon intensifies.

Case in point, amid the Covid-19 panic, the EU unveiled plans for a new climate law that will commit countries to reduce net greenhouse gas emissions to zero by 2050. Ursula von der Leyen, president of the European Commission, announced on March 4 in Brussels that this was a "political commitment and sets us irreversibly on the path to a more sustainable future", echoing our view.

Earlier in the year, we remarked that the Covid-19 pandemic had given us a glimpse into what a sustainable future could look like with large declines in carbon emissions and air pollution. Initial readings from satellite data indicate a 30-60 per cent reduction in nitrogen dioxide and particulate matter pollution in major cities across the world driven by reductions in congestion, air travel, and heavy industry.

With economic activity starting to rebound, however, this will be just a short-lived interruption and will have had a negligible impact on slowing down the climate crisis, which continues to escalate. May data from the Centre for Research on Energy and Clean Air revealed airborne particles measured in China have exceeded concentrations levels measured during the same time the previous year - a first since the start of the Covid-19 crisis.

Amid the pandemic-dominated news headlines, it is also easy to overlook the most recent environmental disasters: Reports of record high temperatures in the Arctic and a record number of forest fires in Siberia. These follow the record number of wildfires in Australia and the Amazon.

It is, however, encouraging to see that many governments have not lost sight of the imperative to decarbonise economies and we are optimistic about the prospects of a "green recovery" in the EU, with fiscal stimulus packages directed towards clean technology sectors such as renewable generation, green building technology and materials, and e-mobility.

"Winners" and "losers" of the Covid crisis

There are many other areas where we expect little change - the need for essential health services, driven by ageing populations, has only increased due to this crisis; there remains great need for insurance and risk management services; population growth and urbanisation will continue and with it the need to invest in sustainable infrastructure, public transport, energy efficient buildings and water technology. Innovation will advance in respect of the circular economy and there will still be demand for many consumer goods and services in relation to sports and leisure, entertainment and healthy eating.

The resilience of the digital economy thus far, with many companies seeing increasing demand for their services, has served to underline the idea that many people and businesses can lead lower carbon lives.

From productivity to entertainment to health, digitalisation has provided the means for many to carry on under lockdown. Cloud computing, cashless payments and online everything are features of the digital economy that have enabled us to live and succeed in a way like never before.

We are living in a period of such exceptional change - characterised by the digitalisation of everything and the transition to a low carbon economy - and while the Covid-19 crisis may have highlighted, and in some cases accelerated these trends, we believe that they are structural shifts that were happening long before the crisis and will continue long after.

We see a strong link between sustainable development, innovation and long-term compounding growth. Our investment framework seeks to invest in companies that have a positive impact on the environment and society, while at the same time helping us stay on the right side of disruption and benefit our investors.