With students the world over having their education severely disrupted during lockdown, everyone is keeping fingers crossed that vaccination will allow schools and universities to open up again. In this article, Patrick Thomas, Head of ESG Investing at Canaccord Genuity Wealth Management discusses how, as the education sector transforms, it could create attractive investment opportunities.
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, these can be important investment opportunities. This is the essence of environmental, social and governance (ESG) investing.
Why is education 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’s 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’s 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’s 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.
What are the drivers behind growth of the education sector?
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. Private companies have also found niches in corporate training and textbook publishing.
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 that schools, universities and colleges 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 spiralling, 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.
If disruption prevails, then so will the technological advancement in education. And it might not be a bad thing in some respects. Online learning might simply be more accessible – and more affordable – for students in the long run. This could serve to narrow the privilege gap.
Education in the workplace
Digital innovation in corporate training is another big growth area. Employers are increasingly bemoaning the lack of readiness that university graduates have for the workplace. Therefore, many are investing in training employees themselves. The types of companies that operate in this area are HR service consultancies, outsourced training companies, online education companies and skills orientated “boot camps”.
Which funds are focused on education?
The MSCI World Index has very limited crossover with the above educational universe, so it is a tough theme to access through a non-dedicated fund. Baillie Gifford Positive Change and Montanaro Better World all have education as one of their principal themes. For pure play exposure, we own 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.
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.
If you have any questions relating to this article or would like to discuss anything in more detail then please do not hesitate to contact our Waverton Wealth Director, Jason Hemmings. Alternatively, you can contact us via our contact form.