How the post-pandemic outlook is shaping long-term shareholder value
Every generation since the start of the Industrial Revolution has faced some degree of upheaval that has shaped their behaviours and attitudes. From the Great Depression of the 1930s to the Great Recession of the 2000s, financial markets have played their part in contributing to major shifts in our society. Now, with the pandemic, we’re seeing another structural change that has the potential to create new sources of innovation and disruption that reshape our economy for many years to come.
As long-term investors, our deep research and differentiated perspective have allowed us to find specific company situations that offer solid returns. In our experience, high-performing companies, such as those ranked on the TSX30™, have a durable competitive advantage, compelling market opportunities, and strongly aligned management. These fundamentals make it possible for companies to be agile and resilient in the face of market forces such as changing demographics, technology and geopolitics, all of which have had an even more complicated impact due to the pandemic.
COVID-19 and long-term investing
Recently, CPP Investments set out to identify new habits and beliefs that are likely to shape the post COVID-19 era and, therefore, have the potential to impact investments. In this research paper, How COVID-19 is shaping the landscape for long-term investors, we uncovered a range of pandemic-related effects, some of which are expected to be long-lasting while others will be more transient.
One of the most notable effects of the pandemic has been the acceleration of digital transformation timelines. This has had a trickle-down effect on companies across the supply chain as consumer priorities and concerns undergo lasting change. As an example, the increase in e-commerce adoption, especially by older consumers, has brought forward market opportunities for both logistics companies and technology providers that make it possible to fulfill those orders.
Shopify and Cargojet, both featured on the 2020 TSX30, are good examples of Canadian companies that are well-positioned to capitalize on this growth opportunity. Shopify helps retail entrepreneurs bring their product to market quickly so they can connect with potential customers who are increasingly shopping online. Meanwhile, companies like Cargojet have mobilized their fleet to quickly transport goods across the country and around the world to keep supply chains active.
ESG factors and shareholder value
The COVID-19 crisis has also emphasized how health and social issues can impact companies. This ties in with discussions that have been happening around the potential of environmental, social and governance (ESG) factors to impact profitability and shareholder value.
Over the last 10 years, the business case for ESG integration has moved from the periphery to the mainstream. We are seeing a clear consensus emerging among institutional investors that ESG is an integral part of making a fully informed long-term investment decision. There is also a growing body of evidence showing that companies that consider ESG-related business risks and opportunities are more likely to preserve and create long-term value.
Sustainable Investing
If we look at this year’s TSX30, technology and clean technology companies represent 23% of the list. This is not surprising, given that climate change is one of the biggest disruptive forces of our time. It has long-term impact on all asset classes and needs to be addressed from a financial point of view.
Our organization has invested $6.6 billion in renewables and early-stage companies like ChargePoint Inc., which provides infrastructure for charging electric vehicles.
As we look to the future, CPP Investments recently updated its policy on sustainable investing and has bolstered its metrics to disclose our carbon footprint for both our public and private investments. We’re asking that companies report material ESG risks and opportunities relevant to their industries and business models, with a clear preference for this disclosure to focus on performance and targets.
As a long-term investor, we believe that engaging with our portfolio companies, employees, customers, suppliers, governments and the community at large will result in forward-thinking corporate conduct and long-term business performance.
TSX30 is a ranking of the 30 top-performing stocks on the TSX based on 3-year dividend-adjusted share price performance. See the full rankings and methodology at tsx.com/tsx30.
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