investment viewpoints

The sustainability revolution: the state of transition

Eagles and Ostriches: the future of sustainable investment
Hubert Keller - Managing Partner

Hubert Keller

Managing Partner

We have arrived in an era of socio-environmental ‘crisis’ in which our social and economic structures are no longer fit for purpose. These issues are feeding into slower global growth and financial market volatility. Sustainability is now a central issue for investors that will increasingly determine which companies will win or lose over the long-term, and will drive future returns for investors.

At the heart of the sustainability challenge is the complex interplay between human development, economic growth and the planet. Economic growth is absolutely essential to improving human well-being and addressing societal challenges. However, for an economy to be sustainable, that growth needs to be inclusive, and cannot have a negative impact on the environment and natural resources we all rely on to survive.

Our current economic model is not sustainable. Over the past few decades, the gains of economic growth have benefitted a relatively small proportion of the global population, and have had a disproportionate impact on the planet, which is now experiencing a changing climate and rising inequality. 

We urgently need to decouple economic growth from our social and environmental footprint. 

In today’s digital age, characterised by transparency and disruption, there is already enormous and growing pressure to address the long-term consequences our traditional economic model has created. These pressures are driven by policy makers through significant re-regulation, by corporate innovation, and by changing patterns of consumption. 

Essentially, they are forcing us to change our established norms and patterns of behaviour, and to rethink how we use natural resources to generate economic growth. This is particularly pertinent as the global population continues to change in size and shape. The rise of the middle class coupled with a rapid increase in the number of households, for example, could exponentially increase our footprint unless our economic and consumption models evolve. 

The transition to a more sustainable economic model requires that we fundamentally change how we operate across every sector, from healthcare to energy, food systems to mobility. In other words, we have to transform our economies. We have to break the link between economic development and environmental deterioration by finding new, more resource-efficient ways of generating genuine and inclusive economic growth. Companies will have to anticipate and react to transition on a massive scale, which will inevitably create risk – those who are unwilling or unable to change will face mounting challenges. But it will also drive very attractive long-term growth opportunities.

At Lombard Odier, we believe there are two main types of companies in this new world : Eagles, which are forward-looking and embrace the strategic importance of sustainability; and Ostriches, which have their heads in the sand and ultimately face existential risks.

Our role as asset managers, on behalf of our clients, is to capture the opportunities and manage the risks of the transition. This means we have to put sustainability at the heart of our investment process so we can identify whether a company is an Eagle or an Ostrich. We believe opportunity is on the side of the Eagles - responsive companies that embed sustainability into their core mission and will be working to deliver on a clear set of objectives to address challenges that are particularly material to their sector. We believe these companies will have healthy business practices and a business model that is built to thrive in the long term and will be better placed to deliver superior financial performance.

This is the Sustainability Revolution and we believe it is the most significant investment opportunity in modern history.

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