investment viewpoints

investing in the inevitable.

investing in the inevitable.

In the 10 years since the first green bond was issued, climate-aligned bonds have grown into a $1.5 trillion market. The continued expansion of this market is of vital importance.

Green bonds we believe increase our ability to avoid carbon emissions and create a positive impact on the environment and societies we live in, and do so in a more diversified and liquid way than ever before. But they are also a key tool to help investors navigate the transition to a low carbon economy.

At Lombard Odier we think this transition is inevitable as our world has now reached a tipping point. There are forces at work which have rendered our current global model unsustainable and that require fundamental changes. For example, our population has grown 70% in the last 70 years and will grow by another 1 billion people over the next decade. We are also using resources faster than the world can replace them, as we currently consume 170% of Earth’s resource capacity1. Climate change is exacerbating the worst of these changes.

These forces will have a transformative effect on our economies. Companies will have to find new ways of doing things, change what they produce, find new innovative solutions, and adapt to rapidly changing demands from regulators and consumers.

Our approach to transportation, for example, will have to change. Demographic changes will lead to higher mobility, migration, urbanisation and a huge increase in the volume of people our transport systems have to carry. To put this into context, the UN estimates that 70% of people will be living in cities by 20502. At the same time, resources are getting scarcer, affecting the cost efficiency of current transport models. We are also likely to see a significant increase in the cost of carbon in the coming years, as we work to mitigate climate change. Consequently, transportation will need to become more scalable, fast, efficient and emission free.

Those companies which are prepared for changes such as these, and well placed to meet new demands, are more likely to thrive and prosper. Transition means risk – change is never easy – but it also presents a huge opportunity.

Asset managers such as ourselves also have to adapt and innovate. We need to find better ways of working out how sustainable companies and countries really are, and where their strengths and weaknesses lie so we can uphold our promises to our clients.

We also have a critical role to play in encouraging companies along the road to orderly transition. We do this by taking our role as owners very seriously and engaging with companies so we understand them as fully as possible, and to bring our significant influence to bear in helping them adapt.

All of this requires us to fundamentally rethink sustainability, rethink investment and, in fact, rethink everything. Looking forward, given the scale and pace of the sustainability revolution, we believe it is going to be the biggest driver of investment returns in the future.

Climate bonds are a vital ingredient in this transition. The continued growth and expansion of this market is of critical importance in providing investors with the tools they need to navigate the transition to a sustainable world.

The question for you as this sustainability revolution unfolds is: Will you ignore it? Or will you invest in it?



1 Earth Overshoot Day, 2018.

2 United Nations, May 2018.


important information.

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