Davos 2020: A Preview

Submitted by Nicholas Colas of DataTrek Research

Davos 2020 is next week, and it will center on how capitalism must change to address climate change. We had a preview of this yesterday, with Larry Fink’s annual CEO letter explaining how Blackrock will start voting its proxies based on how well managements disclose and address this issue. Bottom line: expect ESG topics to absolutely dominate the headlines coming out of the conference next week.

With today’s signing of a US-China trade deal, President Trump can head off to Davos next week with a win in his pocket. In case you didn’t see the particulars of the agreement, there is a link towards the end of today’s note. We didn’t see much new in there, but getting something done will allow Mr. Trump (who is scheduled to speak) to show the world that he is not bent on escalating global trade tensions further.

That’s a pretty Davos-friendly message, even if the specter of 100% US tariffs on French champagne still lingers. Those stem from a long standing American complaint about European subsidies for Airbus, agitated more recently by a 3% French tax on digital services provided by US companies like Apple, Google and Facebook. There’s some chatter that the American delegation to Davos will sort things out with Team France next week, but don’t pop the champagne corks just yet…

On the subject of Davos 2020 more generally, if you are like us the invite to this confab of bold-face names has once again been lost in the mail. That’s actually OK, because every year more and more of the presentations are live-streamed/recorded. As those happen next week, we will review the most useful ones in these notes.

Not to throw stones, but we have found over the years that the central theme of any Davos meeting is more a reflection of current events than any really forward-looking thinking. For example:

• Ahead of the 2008 – 2009 Financial Crisis, the prior 3 Davos conferences were titled “The Creative Imperative” (2006), “Shaping the global agenda, the shifting power equation” (2007) and “The power of collaborative innovation” (2008).
• Despite ample evidence that technology is remaking the world, only 1 Davos meeting in the last decade has led with that idea: “Mastering the fourth industrial revolution” (2016).
• The Davos crew also missed the global rise in populism, only hitting their radar at 2018’s meeting under the title “Creating a shared future in a fractured world”.

This year the conference title is “Stakeholders for a Cohesive and Sustainable World”. A bit of the description from the Davos website:

• “People are revolting against the economic ‘elites’ they believe have betrayed them, and our efforts to keep global warming limited to 1.5 degrees C are falling dangerously short.”
• “With the world at such a critical crossroads, this year we must develop a ‘Davos Manifesto 2020’ to reimagine the purpose and scorecards for companies and governments. It is what the World Economic Forum was founded for 50 years ago, and it is what we want to contribute for the next 50 years.”
• Those are direct quotes from Klaus Schwab, who founded the WEF in 1971 while a professor at the University of Geneva, and is still its Executive Chairman.

The message here is much the same as Larry Fink’s recently released annual CEO letter, which we reviewed yesterday. Davos’ central theme will be the introduction of fresh requirements for disclosure and planning related to climate change. The WEF’s International Business Council will roll out a universal “ESG scorecard” next week. It will no doubt get a lot of attention in the US, if only because the current council chair is Brian Moynihan, CEO of Bank of America.

To round out this Davos preview, here are the 7 subthemes that will guide the +200 sessions next week:

• How to Save the Planet
• Society and the Future of Work
• Tech for Good
• Fairer Economies
• Better Business
• Healthy Futures
• Beyond Geopolitics

Summing up: environmental, social and governance topics will dominate the headlines out of Davos next week. Larry Fink’s letter is the template as far as what that means for investing. Expect to hear more about how even notionally passive managers will take a more active role in promoting ESG topics, especially those related to climate issues. Just remember: Davos has a long track record of missing important trends that inform future asset prices and societal change. Maybe 2020 is different. But probably not…