world in transition
Sustainable investing: a real opportunity for investors
There are a number of tectonic shifts currently transforming our global economy. There will soon be 10 billion people on the planet wanting access to decent living standards, education, healthcare and social security, as well as to a certain standard of consumer goods and services.
At the same time, we need to decarbonise our economy to limit global warming to ‘well below 2°Centigrade’ this century, in line with the Paris Agreement. If we do not, the European and US economies could suffer a cumulative decline in GDP of more than 35%1.
Sustainable investment themes clearly go beyond climate change.
We must also ensure that economic growth is fair and inclusive. During the last 30 years, globalisation has generated unprecedented prosperity, but the gains have been distributed unequally. Greater transparency - brought about by the digital age, social media, and constantly-available information – has highlighted inequality, and made it increasingly difficult to accept by those who have been left behind.
Ignoring these tectonic shifts is no longer an option.
A sustainable economic model encourages growth, while also enabling a balanced level of development that does not damage the environment, and is inclusive and harmonious for all.
Our current economic model fails to meet these objectives, and is, quite simply, not sustainable. It must be fundamentally transformed. Fortunately, the general population, governments and companies increasingly share this view. In addition, evolving consumer behaviour and new regulations are rapidly, and profoundly, altering business models in many sectors of the economy.
We believe this shift towards a sustainable economic model will create investment opportunities, which could potentially be as significant, and more numerous, than those created by the advent of the internet.
Our job, as asset managers, is to help our clients navigate this transition - to capture the opportunities and avoid the risks.
Consider, for example, the transition to a carbon-neutral economy. In order to meet the goals set by the Paris Agreement, we will need to electrify the global economy. This means producing up to five times more electricity than in 2016, using clean energy sources. A considerable decrease in the price of renewable energy over the past few years should mean such a change is possible without additional cost to consumers.
The transition to sustainable energy will affect many sectors. Some large power generation companies are actively building renewable capacity for the long term and focusing on gas, which is cleaner than coal, to reduce emissions during the transition phase in the medium term. Consumer sectors depending on fossil fuels are also adapting quickly. The automotive industry is likely to produce a majority of electric vehicles within five years. Even heavy-duty truck manufacturers are planning profound changes to their business models to achieve carbon neutral emission targets. This transition could also create real opportunities for hydrogen - a clean and easily transportable source of energy - which could become a very important market.
Sustainable investment themes clearly go beyond climate change, though, encompassing other areas such as reducing plastic use, and creating a sustainable diet that uses fewer resources and is accessible to a growing world population.
The transition to a more sustainable economic model will create boundless opportunities for forward-thinking companies to gain market share and prosper, while also creating completely new business models. Digitalisation and technology will play a hugely important role in enabling new and existing companies to find more sustainable ways of conducting business.
Our job, as asset managers, is to help our clients navigate this transition - to capture the opportunities and avoid the risks.
We must also ensure that economic growth is fair and inclusive.
This is why we look for companies that share our view on the importance of sustainability. These companies will have put sustainability at the heart of their business strategy, and will be working to deliver on a clear set of objectives that are particularly relevant to their sector. We think this is fundamental to future operating results because, in our view, sustainability is the only way to maintain and expand a company’s client base, while also attracting the necessary talent and capital.
We also try to understand how a company is approaching the major sustainability drivers that are re-shaping its industry. Will it be a first mover? Will it be an innovator, a disruptor, or could it be a casualty of the transition to a more sustainable economy?
Of course, we look as carefully at the robustness of the company’s financials as well because no company can be sustainable without a robust financial model.
As an asset manager with fiduciary responsibilities, we are not trading values for value. For us, sustainable investing is a way to deliver superior performance for our clients. We simply believe that integrating ESG and sustainability into our approach enables us to select better companies, and is more likely to generate long-term returns.
important information.
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