Is sustainable investment at an inflection point?
7 February 2018
Growing evidence shows that investors are increasingly interested in how their capital can be used for financial and social returns, says Claudia Quiroz, investment director, Quilter Cheviot
The continuing programme of United Nations-led climate change discussions has focused attention on the need for the sustainable management of our planet’s natural resources. In particular, the UN Environment Programme – Finance Initiative has identified that from today until 2050 more than c.£45 trillion is needed to transition to a cleaner and more efficient economy. The economy needs to be decarbonised, by introducing energy efficiency products and technologies, diversifying the energy mix with renewable energy and adapting man-made infrastructure to the realities of climate change.
As work to meet these global objectives gains greater momentum, sustainable investment has also gained a greater profile among investors. The investment needed will require financing which, in part, will be provided by financial institutions. This creates investment opportunities for those that understand the changes taking place, the need to manage climate change and the challenges of urbanisation. In our experience, institutions and individuals are increasingly realising the importance, in this resource-constrained world, of financing companies that provide the products, services and technologies to deliver this cleaner and more efficient economy.
Sustainable investment gives investors the opportunity to participate in the investment cycle that underpins long-term structural economic growth. For those investors and advisers with a wider understanding of the challenges ahead, sustainable investment can deliver both a strong investment performance and make a tangible positive contribution to the world we live in. For those investors purely focused on financial returns, growth is the reason to invest in sustainability and environmental themes, as most end markets in this space have high single or double-digit rates of growth anticipated over the mid to long term.
Sustainable investment is a multi-decade growth opportunity ― most certainly it is not a fad, but a profitable way to participate in the transformation to a low carbon economy. Thus, no matter which camp you sit in, sustainable investment is a win-win strategy.
Force for change
We believe that consumer demand and technological forces are combining to create an unstoppable force for change. We focus on companies offering the solutions to the global challenges of reducing carbon emissions, improving the food supply-and-demand imbalance, reducing water shortages and providing reliable power generation, to mention just a few. We take a multi-asset investment approach to reduce the volatility of returns and cater to our client base.
In particular, we see a large opportunity for investing in ‘sustainable infrastructure’, such as companies offering solutions to the challenges of serving a fast-growing urban population with finite resources. A clear social benefit will result from investing in companies involved in replacing ageing infrastructure, particularly to improve connectivity to the electricity grid, managing and reusing waste and facilitating the transportation of drinking water and waste water. We focus on companies providing smart building solutions and products, such as energy efficient lighting, climate control systems and building insulation.
We believe we have arrived at an inflection point, where demand is finally driving the growth and the appeal of sustainable investment. In our experience, investors are increasingly interested in understanding the impact of their savings and investments on the wider world and future generations.
Millennials are set to become the beneficiaries of the biggest wealth transfer in history. It is estimated that around £3 trillion will be transferred to millennials within a generation in the UK and North America alone. Of all the investment concepts that the ordinary investor has to grapple with, sustainable investing is perhaps the most interesting and accessible, and its strength lies in allowing families to discuss wealth transfer using investment themes with which they are comfortable and familiar.
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