ESG investment innovation opportunities are key to performance

When it comes to ESG investment innovation opportunities, education is key. Patrick Thomas of Canaccord Genuity outlines how this is being achieved.

 Old or new world investing

Sustainable investing is about making sensible predictions about where the world is headed and the companies best suited to thrive there.

One of the major takeaways of this column is the importance of being invested in innovation, rather than having a portfolio of investments that is disrupted by innovation. The greatest challenges for the world, in terms of caring for people and looking after the planet are likely to be areas of innovation and therefore, can also be important investment opportunities. This is the essence of environmental, social and governance (ESG) investing.

A  hot topic for ESG investors

Although education is a poor relation to the ‘save the planet’ element of ESG in terms of the column inches it generates, it is a key building block in creating fairer societies. And the coronavirus crisis has served to underpin that, as it continues to highlight divisions between the haves and have nots in education terms.

The crisis has also been a disruptor for the education sector, as (some) establishments scrambled to transfer their lessons and learning online. And where there is disruption, lies investment opportunity.

Of course, it is much broader than just the current crisis. For a start, education is more than just about sharing knowledge – it is a growth driver for individuals, companies and governments. The United Nations made it one of its 17 Sustainable Development Goals (SDG), because it is so key to
achieving many other objectives, such as breaking away from the cycle of poverty, reducing inequality and creating healthier lifestyles. Education is a global issue.

There is also a lot of breadth and depth in the education sector – it constitutes a very broad ecosystem of companies. Education covers all aspects of lifelong education – children and schools, students and universities, mature students, night classes and education and training at work. Facilities, content, tools and services related to all areas of education are relevant, which pertains to a really diverse mix of sectors and companies.

Growth drivers

Global education is a multi-trillion dollar industry and growing at six percent annually. The issue is most of that spending is hard for investors to access: education is generally seen as a public good, entrusted to governments and not for profit institutions. Profit making companies tend to stick to the private education sector, or providing services such as tutoring, day care and exam preparation.

But this is changing. Schools and universities are under pressure to deliver a better quality ‘product’ as the job market demands better skilled workers. Also, during lockdown, the education practices of many establishments have come under the microscope as parents witness first-hand the level of education their children receive – as a result, they are demanding schools, universities and colleges to up their game. Technology underpins this change – more than one third of students has taken a course online and the coronavirus crisis will only exacerbate this trend. These forces are causing traditional providers to rethink how they serve their students.

For example, demand for digital resources for schools and universities is spiraling, as establishments adopt digital learning at unprecedented rates. Again the current crisis has accelerated this and there are lots of interesting companies sprouting up to fulfil the demand.

How to get students qualified to better levels is another challenge for schools and universities – the focus has shifted from a race to enrol new students, to realising that sustainable growth comes from helping students achieve qualifications and either get jobs, or stay on to do further qualifications. The focus from governments and parents is increasingly on results, which makes sense for universities and colleges too in light of declining enrolment figures. It means there’s also a growth of specialist companies supporting these establishments to achieve results – for example, marketing companies to attract those students who are more likely to be successful and others that can identify students who are ‘at risk’ and develop interventions to help them succeed.

Accessing the theme

The MSCI World Index has limited crossover with the above educational universe, so it is a tough theme to access through a non-dedicated fund. Baillie Gifford Positive Change, BlackRock Global Impact and Montanaro Better World all have education as a principle themes. It is also an area that the Pictet Global Megatrend Selection fund is looking at. For pure play exposure, there is the Global Xtrackers Education ETF and the Amundi CPR Education fund.

All areas of ESG are worthy of attention. But education has really come under the spotlight in recent months. And whatever can be done to address the knowledge gaps of children, improve student outcomes and arm our next generation workforces has to be worth the investment.

Patrick Thomas is head of ESG Investing at Canaccord Genuity Wealth Management.

More from Patrick: What will the office of the future look like post covid-19?

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. This is not a recommendation to invest or disinvest in any of the companies or funds mentioned. Names of companies and funds are included for illustrative purposes only.

Comments (0)