2021: Three sustainable investing themes

By Jenn-Hui Tan
Global Head of Stewardship and Sustainable Investing

Sustainable investing identifies themes that will grow in importance based on our needs as human beings. We need a stable climate to survive and, to achieve that and thrive, we need a more balanced society. That means narrowing social divides where possible, including ensuring equitable access to the internet as the world shifts online.

Below we examine how Fidelity International plans to engage with three of these crucial themes in 2021 and beyond: climate and natural capital, employee welfare and digital ethics.

1. Understanding nature-based risks as part of tackling climate change 

Climate change is the critical issue of our time. Without the rapid reduction of carbon emissions, it will become increasingly difficult, if not impossible, to avoid catastrophic climate effects that radically alter our way of life. The financial impact alone will be immense. A report by the Carbon Disclosure Project and University College London estimates that if nothing is done to reduce emissions, the costs of climate-related damage will climb to €31 trillion per year by 2200[1]. But the impact on humanity will be so devastating by then that the cost will be irrelevant.

Fidelity International seeks to decarbonise in several ways. First as an asset manager through our proprietary sustainability ratings. We use these to identify companies exposed to climate risk, whether physically or from increased regulation. We then engage with those firms on managing that risk and reducing direct and indirect emissions. Second, we participate in global programmes such as the Climate 100+ initiative that pushes large emitters towards more sustainable business models. And third, we have set our own corporate target to achieve net zero carbon emissions across the company by 2040. We also recently committed to the Net Zero Asset Manager initiative, which supports investing that is aligned with net zero emissions by or before 2050.

In 2021, we will increase our efforts to understand the risks posed by the loss of natural capital. The Covid-19 pandemic may have been triggered by human expansion into natural habitats, which brings home the impact of nature loss on us. Half of the world’s GDP (c. US$44 trillion) is “moderately or highly linked” to the availability of natural capital, according to the World Economic Forum; so any loss is environmentally and financially damaging. Moreover, the potential negative feedback loops between climate change and nature loss (for example, via deforestation) make the erosion of natural capital a systemic risk for investors and society alike.

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Better data and more policy action

Calculating and then pricing greenhouse gas (GHG) emissions still presents challenges, but the quality and availability of information are improving steadily. We expect the same effort and innovation around GHG emissions will go into valuing natural capital and biodiversity in the coming years. Two areas will drive this: data collection and government policy.

Measuring biodiversity may be more complex than counting carbon emissions, but ‘big data’ makes it possible to assess multiple inputs. We expect risk disclosure frameworks similar to the Taskforce for Climate-related Financial Disclosure (TCFD) to emerge for natural capital. Fidelity recently published its own TCFD report and encourages investee companies to do so, as well as to disclose nature-based risks wherever possible. This has included working with confectionery companies on their use of palm oil grown in South East Asia and joining a coalition of financial institutions in Europe to call on investee companies to reduce deforestation that occurs along their supply chains.

Companies will find it increasingly difficult to avoid these kinds of obligations. Environmental policy is gathering pace, from the EU’s Green Deal to the US re-joining the Paris Agreement, and to China, Japan and South Korea announcing net zero targets. The latter developments highlight the growing role that Asia will play in setting the climate agenda as international ambitions mount ahead of a crucial UN climate change summit in late 2021.

2. Looking after employees, supply chains and communities

Employee welfare has taken on a new importance in the wake of the Covid-19 outbreak, with many companies seeking to protect their workers and preserve their businesses. Our November Analyst Survey reflected this trend, showing a big increase (compared with January 2020) in the number of analysts reporting that employee welfare was a high priority for companies.

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In 2021, there will be more pressure on companies to take greater accountability not only for the welfare of their workforce, but for the community at large, and for the individuals in their (often) complex supply chains. This is driven in part by the severe effect that the pandemic has had on people’s livelihoods. Only a fifth of the global workforce of 3.3 billion has been unaffected by full or partial workplace closures as a result of Covid-19, according to the International Labour Organisation.[2]

Some have been affected more than others. Women, for example, have lost more of their income than men. For every 100 men aged 25 to 34 living in extreme poverty in 2021, there will be 118 women, according to UN Women, and 121 women by 2030 if nothing is done. So we will be looking to companies to make genuine efforts to support their female workforce.

Workers in certain sectors have faced particular problems. In 2020, Fidelity raised awareness of 400,000 seafarers stuck at sea, unable to disembark at major ports after restrictions were imposed by national authorities in response to the pandemic. Fidelity wrote to over 30 companies in the shipping and charter sectors and has invited other investors to co-sign a letter to the UN calling for urgent action to address the situation.

Finally, supply chain management was a key theme in 2020, and in 2021 we plan further engagement on the auditing of suppliers for poor or criminal practices. In 2020, Fidelity became a founding member of Investors Against Slavery and Trafficking Asia-Pacific (IAST APAC), a newly-formed coalition that aims to prevent modern slavery and address human trafficking risks.

3. Redefining ethics for a digital world

Digital tools have become a lifeline for many during the pandemic, but they have also exacerbated economic inequality. Around half of the global population has no internet access, according to estimates from the International Telecommunications Union, with much lower levels typically in developing nations. Chart, bar chart Description automatically generated

In rural and remote areas, an even greater proportion do not have broadband or a way to use online government services. This creates a divide between those that can access digital opportunities and those that can’t, even within individual countries. For example, 82 per cent of UK job vacancies advertised online require digital skills, according to the UK government.[3] It is therefore incumbent upon policymakers, companies and investors to make digital accessibility a priority in 2021 and beyond.

Fidelity recently supported the launch of the World Benchmarking Alliance’s (WBA) inaugural Digital Inclusion Benchmark (DIB). The benchmark is the first of its kind to rank and score the 100 most influential global tech companies on their contribution to digital inclusion. Fidelity has committed to leading a collaborative engagement with investee companies alongside our WBA partners.

Other areas of digital ethics could affect the near-term valuations and long-term sustainability of technology companies. In 2021, we will monitor those we believe to be the most crucial: data privacy, misinformation, online fraud, online welfare and ethical AI design. Regulatory action so far has centred around the first three, but we believe welfare and design will become increasingly important.

The power of engagement

All of the themes above could be summed up as good corporate governance. As part of their broader governance responsibilities, companies will have to consider how best to recover from the effects of the pandemic in a sustainable way. Otherwise they may struggle to stay in business over the longer term. Companies with strong ESG characteristics outperformed in 2020 and should continue in future to attract more investor capital than those with lower ESG scores.

To improve the sustainability of investee companies, Fidelity will engage on our core themes for 2021 and those raised by our analysts. Much of the power of our engagement comes from our analysts and portfolio managers talking to companies on a regular basis about specific issues they need to address, rather than simply excluding them from portfolios. This is especially true in sectors and regions where environmental, social, governance and digital developments have been slower and asset managers have an even greater responsibility to push firms to act appropriately to create long-term value.

[1]Source: Costing the Earth – Climate Damage Costs and GDP

[2]Source: ILO https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_740893/lang–en/index.htm

[3]Source: UK government report, 2019: No longer optional: employer demand for digital skills

If you have questions and would like your financial situation to be evaluated, please email us on ds@bluerocke.com with your contacts, for an exploratory meeting, at our cost, not yours.

Article source – https://www.fidelity.com.au/insights/investment-articles/2021-three-sustainable-investing-themes/#.YAZYlcsBKiY.linkedin

Video – Global Strategy Update January 2021

In this video, Hamish Douglass, the Chairman and CIO at Magellan, provides an update on recent performance, what the latest vaccine mutation could mean for markets, discusses Chinese stock Alibaba and outlines what he’s looking for in 2021. (Viewing time: 39 mins)

If you have doubts and would like your financial situation to be evaluated, please email us on ds@bluerocke.com with your contacts, for an exploratory meeting, at our cost, not yours.

Source: https://www.magellangroup.com.au/insights/global-strategy-update/

Retirement – Fears and expectations

By Richard Dinham, Head of Client Solutions and Retirement, Fidelity International

For many, the word ‘retirement’ is associated with the idea of extended holidays to far-flung locations or spending quality time with grandchildren. And while the new-found status of “retiree” sits well with some, for others it’s a different story. It all depends on how smoothly the transition into retirement progresses. There are, in fact, a range of financial, emotional and psychological fears that are often linked to retirement – for good reason.

Australians spend most of their working lives saving for their retirement so that when the time comes to retire, they can lead a comfortable life. However, many people are uncertain about what to expect in retirement, and the issues they may face are not always just financial. For many investors, financial planners play a pivotal role in providing technical advice, guidance and peace of mind before, during and after the retirement process. But there are also the emotional and psychological impacts of transitioning to retirement to be considered.

Despite the best laid plans and the most strongly held expectations, around half of Australians do not retire for the reasons they think they will, nor at a time of their choosing.

Research from CoreData found that around 50 per cent of Australians retire early due to unexpected circumstances and within timeframes they did not choose. The reasons range from health issues to unemployment to providing care to loved ones. This can result in retirees feeling out of control and impacted not only financially, but emotionally as well.

Retirement planning is not a ‘one size fits all’ approach. But no matter what an individual’s needs are, solid financial planning allows for a smoother transition and helps alleviate the uncertainty of retirement.

Common fears and expectations associated with retirement 

While it is not surprising that pre-retirees with no superannuation savings are worried about funding their retirement, they are not the only cohort concerned. Despite healthy superannuation balances, CoreData’s research shows that close to two-thirds of pre-retirees are worried about being able to fund their retirement, with only a small percentage feeling very optimistic that they will have adequate financial resources to do everything they want in retirement.

In fact, more than half of those with retirement balances of between $750,000-$1 million say they worry about funding their retirement. These concerns only recede once an individual has accumulated more than $1 million in savings.

Encouragingly though, 43.9 per cent of pre-retirees expect to live a reasonable retirement life, understanding that not all of their desires will be fulfilled. Only four in 10 retirees say that their actual retirement lifestyle is aligned with what they expected, and three in 10 say their retirement lifestyle exceeds their expectations.

Successful retirement factors

A successful retirement involves more than just money. Certainly, money allows for many of the things that make life worth living, but it is not enough on its own. Other important factors in a successful retirement include, mental and physical health, having realistic expectations and owning a home.

Retirement satisfaction occurs when a retirement lifestyle matches the retiree’s expectations. Not every retiree has expectations of a luxurious retirement lifestyle, but all of them expect basic needs to be addressed.

While pre-retirees are concerned about whether they will be able to fund their retirement, once a person is retired, the concern turns to whether they will run out of savings later in life.

Around one in eight say their greatest worry is they will outlive their savings, and close to 10 per cent are worried about affording the costs of high-quality aged care facilities. While the welfare system allows for a basic level of income, budgeting for discretionary expenditure can cause stress.

Having adequate savings in place allows for a degree of flexibility when it comes to discretionary spending and provides a stronger sense of control.

When planning for retirement there are two core factors that determine the amount of savings a retiree needs – life expectancy and projected expenses. Individuals need to consider these, along with other factors including marital status, health and home ownership, when determining how much saving a retiree needs in order to enjoy their desired lifestyle.

Staying healthy

Early retirement is often seen in a favourable light and is eagerly planned for, however 28 per cent of Australians retire early (and unexpectedly) due to health-related issues. Almost half of all retirees consider their health as their greatest worry in retirement.


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Research from the Australian Centre from Financial Studies found those who retire early due to health issues are likely to have lower incomes and so are more likely to have lower superannuation balances. By default, they are also most likely to incur additional health-related expenses in retirement.

Maintaining a healthy lifestyle and addressing potential health issues early are therefore important factors to consider when planning for retirement.

Owning a home

Unsurprisingly, owning a mortgage-free home provides a greater sense of security and retirement satisfaction. Research from the Australian Housing and Urban Research Institute found older people with secure long-term accommodation tend to have better physical and mental health too.

Home ownership is also intrinsically linked to retirement readiness and satisfaction. Those who own more than one property with no mortgage typically experience retirement success. Single property owners also enjoy a high level of retirement satisfaction. In contrast, individuals who own no property score the lowest in terms of retirement satisfaction.

Retirement is one of the single largest changes in an individual’s life and it comes with a host of financial, emotional and psychological fears. A sound financial plan can help manage associated fears and expectations and most importantly, ensure the transition into retirement is as seamless as possible.

Need advice on planning your retirement?

Contact Dev Sarker at ds@bluerocke.com for an exploratory meeting today!


Source – https://www.fidelity.com.au/insights/investment-articles/fears-and-expectations/