With global markets being buoyed by significant fiscal stimulus from the USA, particularly one offering new tax incentives for renewable energy, storage technology, carbon capture, and electric vehicle infrastructure, both the Fund and the benchmark MSCI World rose by +5.0%.

In this month’s commentary, Rachael Monteiro looks at the governance and ethical challenges surrounding the adoption and use of new technologies in combatting the COVID-19 pandemic, and how our investment strategy is overcoming them.

In other news, WHEB joined with 94 other investors with US$3.34 trillion assets under management to voice our support for higher standards across the nursing home sector as a signatory on the Investor Statement of Expectations for the Nursing Home Sector, coordinated by UNI Global Union. For further details on our support and the issues involved please click here.

See full commentary here.

Top Holdings (alphabetically)

A.O. Smith United States Industrials

Agilent Technologies United States Health Care

Ansys United States Information Technology

Daifuku Japan Industrials

Ecolab United States Materials

Intertek Group United Kingdom Industrials

Koninklijke DSM Netherlands Materials

Linde United Kingdom Materials

MSA Safety United States Industrials

TE Connectivity United States Information Technology

Global markets were buoyed during the month by significant fiscal stimulus from the USA.

On 11 March, the Biden Administration passed the “American Rescue Plan Act”. Also known as the “Covid-19 Stimulus Package”, it provides $1.9 trillion of fiscal spending in a wide range of areas, including direct welfare cheques of up to $1,400 per person.

This was followed on 31 March by the unveiling of the proposed “American Jobs Plan”. This infrastructure-led plan, proposed at more than $2 trillion, underscores the Biden administration’s commitment to transitioning to a low carbon economy. The proposal offers new tax incentives for renewable energy, storage technology, carbon capture, and electric vehicle infrastructure.

Anticipation of these massive stimuli helped push our benchmark MSCI World to another record high. Against this backdrop, the Fund performed in line with the benchmark in March with both rising +5.0%.

The positive sentiment around the renewables and infrastructure sectors led to a stronger performance from our Cleaner Energy and Environmental Services themes this month. It was offset by weaker performance in the Safety and Wellbeing themes.

Our Cleaner Energy theme was the strongest performer this month. Renewable energy stocks saw some recovery after a sharp pull-back at the beginning of the year. TPI Composites was the major contributor to the theme. It is a leading outsourced manufacturer of turbine blades for wind turbine manufacturers. The company has recently pledged to net-zero carbon emissions (scope 1 and 2 emissions) by 2030. It plans to source 100% of its electricity from renewables by 2030.

Another strong contributor to the theme was China’s Everbright Environment. Its businesses include waste to energy facilities, power from biomass, and water treatment. The share price jumped up on the back of its solid full-year results. The company managed to resume its development activities in the second half of the year, which were heavily impacted earlier last year due to the pandemic.

Our Environmental Services theme was another strong contributor in March. It was driven by the outperformance from Arcadis. It is an environmental consultant that provides engineering and environmental services focused on buildings, infrastructure, and water businesses. The company is particularly focused on integrating climate adaptation and sustainability into its services. The company has recently appointed its first Chief Sustainability Officer to make a further significant contribution to sustainable development.

Our Safety theme was the weakest performer this month. It was largely driven by the weak performance of MSA Safety. MSA’s products include self-contained breathing apparatuses, air-purifying respirators, gas detection instruments, thermal imaging cameras, and fall protection equipment. The share price weakened as a result of a disappointing recent business update. It suggested a slower-than-expected sales growth in the first quarter due to supply chain disruptions and COVID-related delays. Over the longer term, we expect demand for its products to continue to grow robustly.

Well-being was another negative contributing theme in March. Orpea was the largest negative contributor in the theme.  Orpea is a high-quality operator of nursing homes for the elderly, post-acute, and psychiatric clinics. The elderly care home sector has been hit hard during the pandemic. Nevertheless, the company has continued its excellent execution throughout.  It achieved a remarkable result of an 80% vaccination rate for its residents by mid-March 2021. More than 90% of its nursing homes were COVID free according to its full-year results announcement in March.

The US infrastructure spending, if signed into law, would be one of the largest federal efforts ever to address climate change. It is just one of a huge number of supportive government policies to combat climate change across the world.

We continue to expect that the heightened commitment to fighting climate change will lead to a more favourable business environment. It will help attract more investments in research and innovation in sustainability. Through our sustainability lens, our strategy will continue to identify and invest in these attractive investment opportunities.

Governance of technology and COVID-19

The global response to COVID-19 has been nothing short of a technological revolution in the healthcare sector. My colleague Ty Lee wrote recently about developments in diagnostics, therapy, and vaccination technologies. Perhaps most remarkable has been the speed with which innovations in these technologies have come about, pointing to the scale of human ingenuity.

These ‘wins’ are important to recognise as we continue to face the ongoing COVID-19 pandemic, especially where technological developments have also provided a response to existing global challenges. For example, net-zero carbon commitments now cover more than two-thirds of the global economy as governments look to rebuild national economies. However, significant challenges have also emerged surrounding the governance and ethics in the adoption and use of new technologies.

Global vaccine rollout

With only a few countries are capable of manufacturing vaccines on their own, effective global governance of the equitable distribution of the vaccine has been lacking. Indeed, national self-interests have come to the fore. This means that where you live has become the most important determinant of vaccine accessibility. Ethics aside, certain other consequences are now becoming apparent, such as the emergence of new virus mutations that are hindering efforts to control the pandemic.

Equitable distribution has been a challenge at a national level too. The United States Centers for Disease Control and Prevention (CDC) indicates that Hispanic and black Americans are receiving vaccinations at a significantly slower rate than white Americans, despite being almost twice as likely to die from COVID-19. Technological advances alone are not expected to overcome these geopolitical factors or structural biases. And so, without good governance, the impact of the vaccine rollout may be undermined with negative impacts exacerbated for those who are already vulnerable.

The ‘infodemic’

The spread of misinformation has also significantly threatened global public health during the pandemic. Social media platforms and messaging apps, such as Facebook, Twitter and WhatsApp, have been key enablers of the spread of false information. Despite this obvious governance failure, some have prospered, with Facebook seeing a 39% rise in advertising impressions in Q1 2020.

It is both saddening and frustrating to see the technology that has helped such platforms become so successful has also enabled large negative impacts on society. Especially where the same technology has the potential to help in the fight against infections, as demonstrated by the successful contact-tracing programs in South Korea, Vietnam, Japan, and Taiwan.

Unintended environmental consequences

The sight of discarded facemasks has become commonplace around cities. It is therefore little surprise that the environmental impact of personal protective equipment (PPE) waste is receiving growing attention. Protection is, of course, a priority. However, it is also adding to the carbon burden.

The healthcare sector has been amongst the fastest-growing during the pandemic and PPE is not the only by-product generated. The use of vials, syringes, and cartridges has also increased. Healthcare, alongside fast-moving consumer goods (FMCG) and e-commerce, has significantly contributed to an increase in the size of the global plastic packaging market which has a projected compound annual growth rate of 5.5%, mostly in response to COVID-19.

Good governance in times of crisis

The thematic nature of WHEB’s positive impact strategy means that we have little or no exposure to certain sectors, including the mega-cap consumer technology names. Our approach also results in overweight in health and industrials. As a result, the strategy is not directly exposed to some of the major governance issues outlined above, such as the infodemic enabled by the social media firms which often find their way into many ‘green’ funds. Nevertheless, we remain acutely aware of the risk that poor governance will significantly undermine progress by positively impactful companies held in the strategy, harming sustainability outcomes, and investors’ returns.

As we have previously written, environmental, social and governance (ESG) research is essential to our understanding of the fundamental quality of a business. We integrate robust sustainability and financial analysis of companies at every stage of our analytical process. Additionally, as long-term investors, we take stewardship seriously, and engagement and voting are both an output of and input into our investment process.

As the pandemic has unfolded, we have scrutinised reactions from companies in the portfolio, particularly focusing on the pharmaceutical sector. WHEB has been pleased to see how companies such as Hikma, which supplies 11 out of the 13 most widely used injectable medicines needed to treat COVID-19 patients, have worked to ensure that resources remained available across the industry.

Beyond this, through our support to industry initiatives such as the Institutional Investors Group on Climate change (IIGCC), WHEB has actively championed public policy issues including urging the UK Government to deliver a clean and just recovery from the pandemic.

There is no doubt that the pandemic has accelerated the deployment of a variety of healthcare technologies that would otherwise have taken many years to achieve scale. The pace of vaccine development and the magnitude of successful vaccinations are perhaps the most remarkable. But for these advances to achieve their full potential, good governance remains an essential foundation.