While COVID-19 is trouncing traditional investment themes, sustainable investing--already a $30-trillion mega trend--is calling all the shots in a world where big money has realized one critical truth: This is a game of survival, and the key is mitigating risk.
It’s no longer about dogma, ideology, or even politics. Big money goes where it has the best chance of multiplying, and from here on out, that includes pure—and profitable—sustainability.
So, when a new start-up like Canada’s Facedrive (TSX.V:FD) emerges in the explosive ride-sharing space and says it plans to challenge giant Uber for market share, it’s worth listening. Especially if that start-up is challenging a giant with a sustainable investment theme.
Facedrive plans to challenge Uber in exactly the way the big money today is anticipating: By transforming ride-sharing from one of the worst polluters into a more carbon-neutral endeavor that offers riders a choice of EVs and hybrids and plants trees along the way to offset emissions for those riders who don’t make that choice.
It’s goal is to do what Uber has done, only better--by putting the “people and planet first”.
And if we translate this into today’s big money language: It’s about mitigating risk and avoiding all the problems that have plagued Uber from day one.
Big Capital Hunting for Sustainability
Big capital is paying attention right now. It’s on the hunt for innovative new companies that have latched on to the $30-trillion-plus mega trend of ESG investing, otherwise known as environmental, social and governance investing.
That $30 trillion mark was already reached at the beginning of 2019, and the global COVID-19 pandemic may be hastening sustainable investing’s ascent to the throne of thrones.
According to the Global Sustainable Investment Alliance (GSIA), sustainable, or impact investing, grew 34% from 2016 to 2019.
To put that in perspective, the entire U.S. stock market was only worth $23.8 trillion as of March 12, 2020.
But now, it should see its biggest boost yet. That’s been made clear by the fact that ESG investments have wildly outperformed the overall market as COVID-19 sends stocks into a dismal downward spiral.
Morningstar puts this into clear focus for us, noting that in March, 62% of ESG-focused large-cap equity funds outperformed the S&P 500 Index. Bloomberg Intelligence shows similar numbers.
Analysts are lining up behind this theme.
Nigel Green, CEO of the deVere Group, an independent financial advisory firm, predicts a “skyward surge” in sustainable investing over the next year, triggered by the coronavirus pandemic and its economic fallout. And it’s already becoming clear as funds with sustainable assets have fallen only half as much as the S&P 500 Index amid the pandemic.
“Before the pandemic, research revealed that investments that score well in terms of ESG credentials often outperform the market and have lower volatility over the long run,” Green said. “Since the COVID-19 public health emergency upended the world, the latest broad analysis shows that ESG funds have typically continued to outperform others.”
The world court is now in session, and, as Green notes, “increasingly companies will only survive and thrive if they operate with a nod from the wider court of public approval. It has underscored the complexity and interconnectedness of our world in terms of demand and supply, in trade and commerce – and how these can be under threat if not sustainable.”
As far back as 2016, the masterminds of Facedrive were plotting ride-sharing 2.0, the version that correctly predicted that the world would not just want more, they would want higher quality.
When they launched in 2019 in Canada, it was precisely at the time that sustainable investing was a solid mega-trend.
And now, amid a global pandemic, they are expanding--and, again, the timing couldn’t be better. COVID-19 has shown us exactly how deeply interconnected our basic systems of survival are, whether it’s to battle a virus or fight climate change.
Facedrive is already on the front lines of the COVID-19 battle, providing discounted rides for healthcare workers, developing the new TraceSCAN app to help keep communities and families safe by detecting instances of infection, and organizing a medical delivery service that keeps high-risk groups from unnecessary exposure.
And all the while, it’s planting trees, battling climate change right along with coronavirus.
When the dust settles on this global pandemic, social responsibility, sustainability, good governance and impact will be remembered most.
Mitigating Risk: The Top Investment Theme
Mitigating risk means making more money. That’s why this isn’t about big money suddenly growing a conscience. Instead, it’s about people--with Millennials in the lead--finally realizing that climate change is a very real threat to our lives and livelihoods. And big money follows the consumers because that’s where the profit is.
Now, the pandemic has brought climate change into full relief. In fact, an Intergovernmental Panel on Climate Change and the Harvard Center for Climate Health and the Global Environment note that the two are not unrelated.
Pandemic risk increases as the planet heats up, and so does global financial instability, and they feed on each other.
In the ride-sharing space, this is where Uber (NYSE:UBER) got it wrong, even though it paved the way for ride-sharing to become a massive mainstream market.
For Uber, it’s been a bumpy ride, at best. The company quickly became a poster-child for a toxic work environment, leading to the #deleteUber campaign. But more egregiously, Uber, failed to take into account our drastically changing times from a climate perspective. And it failed to do this and still isn’t turning a profit.
A recent study by the Union of Concerned Scientists estimates that the average (U.S.) ride-hailing trip results in 69% more pollution than whatever transportation option it displaced.
That's a huge number, that scientists estimate is actually higher in densely populated areas. In this age of green investing, this is a data-point that green-conscious customers everywhere are finding hard to swallow. But now, they don't have to. With Facedrive, they can contribute to planting a tree every time they take a ride. It gives consumers a choice they have never had before.
The fact that Uber hasn’t made a dime in a decade only pushes the ESG investment thesis further. It doesn’t pay to stubbornly resist the battle against climate change. It pays to rush to the front line, as Facedrive has.
That means working with local authorities, as Facedrive does, to ensure that the ride-sharing business is benefiting everyone, from its shareholders and the communities it serves to its riders, who demand increasingly higher quality and a chance to reduce their environmental footprint, and the drivers, who are partners, not cheap labor.
Facedrive isn’t just a ride-sharing platform, it's a high-tech innovator spawned from the brightest minds of Canada’s ‘Silicon Valley’. And it’s using that tech to position itself on the front line of the COVID-19 pandemic battle, and further to position itself on the frontline of sustainable investing.
From planting trees and becoming the first to add EVs to the ride-share menu … to rolling out frontline healthcare transportation services at lightning speed and pursuing the rapid development of TraceSCAN, a digital contact-tracing app designed to support nationwide efforts to slow the spread of COVID-19, in collaboration with the University of Waterloo.
The news flow has been as fast as the rate of infection in the United States. In the span of only several weeks, Facedrive has announced global expansion to Europe and the United States, acquired an innovative carpooling platform called HiRide that is storming the Canadian long-distance ride-share segment, and jumped into the COVID-19 battle with a huge line-up of services dedicated to improving community logistics and keeping people safe.
In the post-COVID environment, the impact of this small company may already be far greater than anything Uber has accomplished in a decade, and big capital will sit up and take notice.
Other companies on the forefront of the sustainable investing trend:
Tech giants are taking a surprising leadership role in this new trend. Especially among the big four.
Google’s parent company Alphabet (NASDAQ:GOOGL) is a shining star in the tech world. Despite being one of the largest companies on the planet, in many ways it has lived up to its original “Don’t Be Evil” slogan. Though it has had its controversies in the realm of data collection and advertising, Google has led a revolution in the tech world on multiple fronts.
First, and foremost, it has officially powered its data centers with 100% renewable energy over the last two years. A massive feat considering exactly how much data Google actually processes. Not only is Google powering its data centers with renewable energy, it is also on the cutting edge of innovation in the industry, investing in new technology and green solutions to build a more sustainable tomorrow.
It’s bid to reduce its carbon footprint has been well received by both younger and older investors. And as the need to slow down climate change becomes increasingly dire, it’s easy to see why.
Social media giant Facebook (NASDAQ:FB) is certainly doing its part, as well. Not only have they made dramatic progress towards their goal to run on 100% renewable energy by the end of 2020, they’re working to build more water-efficient data centers. In fact, their data centers use 80 percent less water than typical data centers, a massive feat considering exactly how big in number and size their data centers actually are.
And then there’s Microsoft. Microsoft (NASDAQ:MSFT) is one of the most innovative and well-known companies within the tech sector, but its Windows platform is the most widely used operating system on the planet. First launched in 1985, Windows has shaped what is expected from a personal home computer.
But Microsoft is appealing to investors for more just its Windows platform. It is diving head first into an entirely new market. With key partnerships utilizing and implementing blockchain technology, the company’s upside could have huge potential as the tech takes off.
Not only has it always been on the cutting edge of innovation, it’s taking a serious stance on the climate crisis. In fact, it’s pushing so hard that it is aiming to be carbon NEGATIVE by 2030. That’s a huge pledge. And if anyone can do it, it’s Microsoft.
Even Big Oil supermajors have been dipping their toes into the sector to diversify their portfolios and hedge their bets in the rapidly changing cultural and economic zeitgeist. Total (NYSE:TOT) maintains a ‘big picture’ outlook across all of its endeavors. It is not only aware of the needs that are not being met by a significant portion of the world’s growing population, it is also hyper-aware of the looming climate crisis if changes are not made. In its push to create a better world for all, it has committed to contributing to each of the United Nations’ Sustainable Development Goals.
And, of course, no one could ignore the renewable boom when talking about sustainable investing. NextEra (NYSE:NEE) is the world’s leading producer of wind and solar energy, so it’s no surprise that it has received some love from the ‘millennial dollar.’
In 2018, the company was the number one capital investor in green energy infrastructure, and fifth largest capital investor across all sectors. No other company has been more active in reducing carbon emissions. And they’re just getting started.
By 2025, the company aims to reduce their own emissions by 67 percent while doubling their electricity production from a 2005 benchmark. To put this into perspective, if all of America’s utilities were able to achieve NextEra Energy’s projected 2025 emissions rate, absolute CO2 emissions for the power sector would be approximately 75% lower than they were in 2005.
By. Nick Marsh
