The case for sustainable investing in the UK

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The case for sustainable investing in the UK

In the UK, vaccination rates were rising and pandemic restrictions easing as we moved into the summer. As this becomes something increasingly seen around the world, it gives us an opportunity to reflect on the existing trends the Covid-19 pandemic has accelerated, including a focus on environmental, social and governance (ESG) analysis and sustainable investing
Greater company awareness of ESG factors, particularly the social factors as they pertain to employee health and safety, and the investment community’s desire to become more responsible custodians has shifted the narrative of what the true goal of investing should be.

Tailwinds for sustainable investing

Since 2015, the United Nations’ 17 Sustainable Development Goals (SDGs) have represented a catalyst for change.1 The past 20 months of the pandemic have been a watershed moment for governments globally – with structural trends supporting achievement of the goals:
Sustainable investing
Decarbonisation There has been an acceleration of net zero targets from governments around the world, including China by 20602 and the US by 2050.3 In November 2021 the UK will be the focus of the world when Glasgow hosts the 26th United Nations Climate Change conference, where the focus will be on increasing the pace of global decarbonisation, with implications for all sectors. We expect decarbonisation targets to become more ambitious.
Sustainable investing
Sustainable infrastructure Forthcoming infrastructure spending is material: the EU will invest more than €600 billion in the next five years4 and President Biden’s $1 trillion infrastructure bill is making its way through the Capitol. In the UK, public sector investment is at its highest level in 65 years.5 With the built environment contributing around 40% of the UK’s total carbon footprint6, sustainability will form a key part of budgeting decisions.
Sustainable investing
Social equality and inclusion People in lower-income communities have been disproportionately affected by the pandemic. The increase in focus on the S in ESG means addressing social inequality is a key part of economic recovery programmes through, for example, improving access to education, financial services and technology.
Sustainable investing
Healthcare The importance of innovative healthcare companies and strong systems has been highlighted by the pandemic, as has the need for encouraging healthier habits and lifestyles, across all age groups. Governments worldwide will increasingly focus on public health programmes such as around mental health and wellbeing, in addition to obesity reduction strategies, including healthier eating and encouraging exercise.
Figure 1: The UK provides a rich set of opportunities to invest in global sustainable leaders7
The UK provides a rich set of opportunities to invest in global sustainable leaders
Source: Columbia Threadneedle Investment, August 2021
Around 75% of companies in the FTSE All Share earn their profits from outside the UK8, and so offer global exposure to under-the-radar sustainable leaders backed up by the market’s solid corporate governance practices. Yet there is a large valuation disparity between both the index and some of those global sustainable leaders (Figure 2)

Figure 2: UK versus US and Europe

UK versus US and Europe
UK shares at record low relative to US
UK equities at record lows versus US
Price-to-book valuation of UK versus US3
Kurs-Buchwert-Verhältnis britischer und US-amerikanischer Aktien im Vergleich
Source: Bloomberg, as at July 2021. The mention of stocks is not a recommendation to deal. All intellectual property rights in the brands and logos set out in this slide are reserved by respective owners
We see value in the UK market which continues to trade at too wide a discount relative to international indices. The certainty around Brexit and success around the vaccine roll out should put the UK market in a strong position to perform. In the first half of 2021 the FTSE All Share has rallied but continues to remain a laggard versus some global indices. The opportunity for valuation arbitrage remains and, as a result, merger and acquisition activity in the UK is at record levels, with John Laing Group, Vectura and RSA among many UK companies bid for.

The UK Sustainable Equity fund

The Threadneedle UK Sustainable Equity strategy has a dual objective to generate long-term performance that exceeds the FTSE All-Share index and invest in companies with positive sustainable outcomes. The aim is to identify businesses whose products and services have a demonstrable positive impact on the environment or society, measured through revenue alignment with the SDGs alongside strong or improving ESG characteristics, fundamentals and an attractive valuation (Figure 3).
Figure 3: Breaking the fund down
Breaking the fund down
Source: Columbia Threadneedle Investments, July 2021
Engagement is a key part of the UK Equity team’s investment process, which often utilises non-standard ESG and sustainability data. We meet CEOs and CFOs during results roadshows, as well as chairmen, other board members and heads of sustainability, to thoroughly assess companies’ fundamentals, financials, ESG risk management, targets and, crucially, sustainability. Essentially, we are interested in how these companies are mapping their strategies with a global shift to sustainable investment.
Our robust and fully integrated process – focusing on ESG, sustainability and strong fundamentals in an undervalued market – means we are well positioned to benefit from the UK’s broad opportunity set of global investment, megatrends and the rise of ESG analysis and sustainable investing.
27 September 2021
Sonal Sagar
Sonal Sagar
Portfolio Manager, UK Equities
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The case for sustainable investing in the UK

1https://sdgs.un.org/
2https://www.reuters.com/article/un-assemblyclimatechange-idUSL2N2GJ105
3https://www.theguardian.com/us-news/2021/mar/15/race-to-zero-america-emissions-climatecrisis
4Recovery and Resilience Facility, 28 May 2020.
5https://www.ft.com/content/8c6b43ec-5fc3-11ea-8033-fa40a0d65a98
6https://www.ukgbc.org/climate-change/
7All intellectual property rights in the brands and logos set out in this slide are reserved by respective owners.
8https://www.investorschronicle.co.uk/ideas/2021/05/10/could-the-uk-be-the-trade-ofthe-decade

Important Information

For use by Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). This is an advertising document.

This document is intended for informational purposes only and should not be considered representative of any particular investment. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This document and its contents have not been reviewed by any regulatory authority.

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07- 07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.

In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港 有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.

In the UK: Issued by Threadneedle Asset Management Limited, registered in England and Wales, No. 573204. Registered Office: Cannon Place, 78 Cannon Street, London EC4N 6AG. Authorised and regulated in the UK by the Financial Conduct Authority.

In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Sociétés (Luxembourg), Registered No. B 110242 44, rue de la Vallée, L[1]2661 Luxembourg, Grand Duchy of Luxembourg.

In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA).

For Distributors: This document is intended to provide distributors with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparty and no other Person should act upon it.

In Switzerland: Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.

Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

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Important Information

For use by Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). This is an advertising document.

This document is intended for informational purposes only and should not be considered representative of any particular investment. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This document and its contents have not been reviewed by any regulatory authority.

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07- 07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.

In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港 有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.

In the UK: Issued by Threadneedle Asset Management Limited, registered in England and Wales, No. 573204. Registered Office: Cannon Place, 78 Cannon Street, London EC4N 6AG. Authorised and regulated in the UK by the Financial Conduct Authority.

In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Sociétés (Luxembourg), Registered No. B 110242 44, rue de la Vallée, L[1]2661 Luxembourg, Grand Duchy of Luxembourg.

In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA).

For Distributors: This document is intended to provide distributors with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparty and no other Person should act upon it.

In Switzerland: Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.

Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

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