a sustainable economy through systems change

an investment approach to sustainability rooted
in economic fundamentals.

a new economy is forming.

Equity markets have been shaped throughout history by the repeated transformation of our economic systems. Today, a convergence of drivers is creating global systems change on an unprecedented scale. This will give rise to what we call the CLIC^® economy (circular, lean, inclusive and clean).

Ultimately, we will move to a net zero, nature-positive, socially constructive and digitally enabled economic model. The transformation will put existing business models at risk, while creating exciting new opportunities for those with the vision to seize them.

global systems change.

At LOIM, we have learned through the years that markets are shaped over the long term by new economic models that emerge to outcompete existing ones. Past examples abound: from the introduction of the railways (solving for the capacity and efficiency limitations of horses), to the shift from wood to coal (solving for the 17th century’s energy crisis). Each era's societal challenge has driven innovation and systemic evolution.

system change: our definition.

System change refers to an irreversible transformation in a complex system’s technologies, value chains and economic dynamics, driven by an economic response to a pain point. This change typically involves accelerated innovation, sectoral collisions and the emergence of new players and investment models.

We refer to the catalysts for system change as pain points – where current systems start to become unviable after reaching the limits of scalability, efficiency or physical supplies. This spurs the creation of new solutions and shifting profit pools. In other words, supply and demand evolves in response to economic need.

74%+

is the energy system’s share
of global emissions¹

Up to

40%

of global land is degraded as a
result of resource use,
pollution and deforestation²

6/9

planetary boundaries
have been breached³

~10%

is the portion of GDP now represented by health expenditure across the OECD. Spending has doubled since 1970 to keep up with demographic demands⁴

System change investing looks beyond obvious trends, asking where responses to pain points are creating new opportunities and resulting in sustainable outcomes. Our sustainable investment teams and knowledge partners seek to identify the companies we believe are best placed to flourish in tomorrow’s economy, delivering growth above and beyond expectations already embedded in the share price.

where do we see pain points today?

The chart below shows the four major pain points we see emerging and their corresponding system changes.

investing in tomorrow’s economy.

By grasping the system changes behind the new economic model, we can link them to investable opportunities in equity markets. This opportunity set spans the broad economy – everything from energy and power, to industrials, consumer products, healthcare, financial services and technology.

opportunities from the four end states.

net zero

The widespread decarbonisation and electrification of industry, transport and the built environment will shift us from an economic system based on fossil fuels to one that is more efficient, decentralised and flexible. Solution providers will help transitioning companies unlock value, while transition leaders spearhead the decarbonisation of carbon-intensive industries. We see opportunities in areas such as industrials, automotive manufacturers, materials and semiconductors.

nature positive

The rise of the bioeconomy and a focus on resource efficiency will shift us to an economic model that harnesses and preserves nature. Biobased products will displace resource-intensive materials, while smarter solutions for agriculture and water management will reduce our environmental footprint. A system-wide focus on resource efficiency will lead to design improvements, product longevity, and increased sharing and recycling. Opportunities cover a wide range of processes, and tech-enabled solutions will play a crucial role.

socially constructive

More socially constructive systems focused on affordability, accessibility and wellbeing are set to disrupt the economy. We see opportunities arising from areas including a move to private pension systems and growing access to financial services; a shift to preventive health care; an increased focus on leisure experiences; and widespread affordable housing. New consumer systems will emerge that focus on high product innovation, resilient supply chains and outcompeting on affordability.

digitally enabled

This end state is an essential part of each of the others. Technology is everywhere – from smart grids that connect our homes and vehicles, to equipment that will transform our value chains, and personalised care and subscription models that will define the consumer experience. Innovation and efficiency are focal points of global systems change, with technology, data and AI acting as the digital spine. Investment opportunities span hardware, software and the IT services that will power the digital economy.

mispriced growth, resilient multiples.

Our understanding of global systems change anchors our investment approach. It is the first step in a process designed to help us identify companies with the most mispriced potential.

In equity markets, we look to find businesses that are positioned to benefit from the opportunities created by the system changes driving the transition to a more sustainable end state. Using fundamental analysis, we then assess how the growth and returns currently priced into the shares differs from our assumptions. We will invest where we believe the market is underestimating the potential and overestimating the risk. Ultimately, we are hunting for mispriced growth and resilient multiples.

three pillars.

We have developed a cohesive suite of active investment strategies centred around the common narrative of systems change. The products are organised around three pillars: Climate, Nature and Social, with enabling technology as a cross-cutting theme.

At LOIM, our approach to sustainability is rooted in economic fundamentals. It’s not about wishful thinking – it’s about changes in supply and demand in response to economic need. We believe that continuing to understand these dynamics will be the basis for identifying long-term value drivers in tomorrow’s economy.

sources.

[1] Emissions Database for Global Atmospheric Research (EDGAR, 2024). GHG Emissions of all countries. Fossil CO2 emissions are estimated to have accounted for 73.7% of global GHG emissions in 2023.
[2] UN Convention to Combat Desertification (2022). Global Land Outlook: Second Edition
[3] L. Caesar, B. Sakschewski, L. S. Andersen, T. Beringer, J. Braun, D. Dennis, D. Gerten, A. Heilemann, J. Kaiser, N.H. Kitzmann, S. Loriani, W. Lucht, J. Ludescher, M. Martin, S. Mathesius, A. Paolucci, S. te Wierik, J. Rockström (2024). Planetary Health Check Report 2024.
[4] Huber, M. (1999). Health Expenditure Trends in OECD Countries, 1970-1997. Health Care Finance Review, 1999 Winter, Issue 21, No. 2, pp. 99–117; OECD (2023). Health at a Glance 2023.

important information.

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