Silvia Merler, head of ESG & Policy Research at Algebris Investments, suggests five thematic ESG areas that will drive sustainability investments in 2024.
We always focus on quality when selecting investment opportunities, but in a situation of economic slowdown, we think quality becomes even more important as a focus.
Markets will reward companies that are able to sustain their gross margins and to generate free cash flow. To do that, companies need to have strong pricing power and they need to have a strong competitive position.
Companies also need to have very solid balance sheets that can help them redistribute cash in form of M&A, for example, or to expand their activities, or pay dividends. We think these are the attributes that the markets will expect to see and will reward the most. These are also key indicators of well-managed quality companies that we will continue to keep our focus on.
We also see five thematic areas that we think will drive sustainability related investments in 2024:
1. One is, unsurprisingly, the energy transition. The drive towards net zero remains very strong, both at the policy level and in terms of the investment being made by Government.
2. We also think that sectors connected to electrification or battery and storage, or also circular economy and recycling, will remain very strong and will maintain levels of interest for sustainability minded investors.
3. Other areas where we see potential is that of health care and education, because it’s connected to a secular trend, which is that of ageing. And so, we think that trend remains relevant and valid, and connected sectors will benefit.
4. Digitalisation is an area where we also think there will be increase interest, both connected to the latest developments in AI, but also more generally. Cybersecurity, data centre and data management will be areas where we think there will be interest.
5. And then lastly, the continued trend towards reshoring which will present potential investment opportunities from the complicated geopolitical context that we are continuing to navigate.
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