Heading into 2021 we outline some of the key topics that we believe will drive the agenda for ESG investors this year. In addition, we provide investors with our most and least preferred sustainable investment themes and the performance statistics of both investment approaches. 

Our sustainable investment approach generated a 5.5% return in December thereby outperforming MSCI AC World by 320bps and lifting the alpha since launch in November 2019 to 1068bps. Our analyst-based ‘Ideas with Impact’ outperformed MSCI AC World by 285bps in December and 1515bps since November 2019. 

Our most preferred themes based on Credit Suisse HOLT®’s Quality and Momentum and our measure for Transition potential remain Building Energy Efficiency, Healthy Living and Automation. Water, Infrastructure and Renewable Energy remain our lowest ranked themes.  

The potential for a pullback in Renewable Energy is high in our view given i) a 99% rise in 2020 and 18% in December, ii) relatively weak cash flow returns, iii) average growth prospects, and iv) challenging valuation conditions. We highlight 26 building exposed stocks as alternatives to investors looking for ‘Green’ investment ideas.  

Climate change regulation is likely to receive greater attention in 2021, in our view. We see ‘COP-26’, the German elections, the publication of details around the EU’s ‘Fit for 55’ programme and additional disclosure around the upcoming Taxonomy regulation in Europe as key drivers. This is likely to put further pressure on emission-intensive industries. 

A sustainable food system is needed given the growing challenges associated with malnutrition and obesity, food waste and the fact that 28% of greenhouse gas emissions can be attributed to food production and consumption. Companies exposed here include producers of alternative meat and plant-based food, sustainable packaging, and technology. 

Greater equality or diversity is likely to become a more important topic this year as regulation around corporate reporting tightens in the US and Europe. In the past we have shown that companies that score well from a Gender and LGBT perspective tend to outperform broader markets. We highlight 32 companies which score well on diversity.