A Shift in Priority: What Sustainability Means for Your Post-COVID Portfolio
Despite grabby headlines and market maxims, consumer behavior is really hard to understand. Even harder to predict. There are as many buyer habits as there are buyers, and the needs and means of each are in constant fluctuation.
Large scale change, on the other hand, can be seen a mile away. When a society experiences a drastic shift in priority, behavior changes. When behavior changes, the market follows. It’s an age-old recipe, and today has all the ingredients.
Rarely is a crisis as collectively felt as COVID-19. People everywhere have confronted health and safety as a public responsibility. We’ve experienced first-hand our interdependence—how our actions can help or harm others, and how cooperation is integral for tangible change.
Congruently, we’ve seen the planet breathe easy in our absence. Clear skies, repopulated forests, smogless freeways and starry nights—the relief may be temporary, but it serves as a meaningful example of what may still be possible through sustainable living.
With our safety in our hands and clean air in our lungs, priorities have shifted—drastically, globally. One thing is clear: A change is going to come.
Sustainability: The New North Star
Nearly every business has had to pivot or pause, and either strategy has required clear communication with consumers. The resulting transparency across all market sectors has created new disclosure expectations that will long outlast the pandemic.
Consumers expect corporations to disclose the ins and outs of their operations, and sustainability solutions are emerging as the new bare minimum. As people reconsider every part of their routine, their concerns transcend personal safety. They want to know if their favorite restaurant has contactless takeout—and if their containers are recyclable, and if they engage local farmers at fair prices.
The new expectations are especially apparent across the real estate market. Employers are weighing the risks of a return to office, and tenants in multifamily housing share the same concerns. Landlords have noticed more people speaking the language of sustainability in their searches. Prospective tenants inquire about the WELL Building Standards, request the Global Real Estate Sustainability Benchmark reports and find huge value in sustainable solutions.
The Human Side
A product of our recent reminder of interdependence, the human side of sustainability has become a top priority. Real estate decisions will be driven as much by a building’s people-first solutions as they are by green features. Employers taking their teams from the comfort of home back to the office culture are looking for morale solutions. Offices with meditation rooms, integrated outdoor space and natural sunlight will rise to the top of the market.
Consumers are less motivated to spend in current market and employment conditions, and they want to put their dollar toward a better social standard. They care about how companies treat their employees, how businesses think about people. Philanthropic brands, fair-labor manufacturer and employee-first company cultures have become the only options in the eyes of consumers.
The Proof Is in the Numbers
A recent analysis by Morningstar demonstrates that ESG (Environmental, Social and Governance) investments are outperforming other sectors. ESG funds registered record growth in the first quarter of 2020, gathering a reported $10.5 billion. Denmark, known as a world leader in eco-friendly business, has the strongest stock market performance worldwide, one of only three markets to remain positive through 2020.
Major market figures are voicing similar observations. Paul Tudor Jones, a billionaire hedge fund manager, recently shared remarks with CNBC during a JUST Capital event. He stood in critique of the old-fashioned mindset that companies exist solely to generate profit. Such low expectations, he explained, give companies a pass “not to pay attention to a whole list of social factors that, at the end of the day, are the basis and the foundation of a strong, vibrant society.”
Investors are at an inflection point as they calibrate for the COVID-19 disruption and plan new long-term strategies. Going green and building a portfolio that prioritizes environmental and human sustainability is no longer aspirational, it’s practical. Perhaps we’ve never been more in touch with our desire for that strong, vibrant society to which Paul Tudor Jones points. Investing in companies aligned with that vision is as rational a strategy as any for capital return.
Zain Jaffer is the founder and CEO of Zain Ventures, an investment firm with over $100 million in assets under management. Zain Ventures invests in a variety of startup businesses, real estate, stocks, hedge funds and private equity.