The environment: investment’s new Holy Grail

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Growth potential for decades

  • The latest IPCC[1] report highlights the effects of climate change on our lives and livelihood
  • Environmental investment funds must contribute to the resolution of environmental issues and enabling a greater number of the world’s citizens to improve their standard of living
Can environmental issues profoundly modify the equilibria that we now take for granted?

Two simultaneous phenomena – population growth and higher living standards in emerging economies – are boosting demand for natural resources. This is already showing up in higher prices. One answer could be, for example, to tap new oilfields and bring new farmland under cultivation. The second consists of using renewable resources and coming up with more efficient and thriftier usage.

In parallel, modern economies are threatening natural equilibria through pollution and climate change. According to projections, in 2030 almost half of the world’s population will live in water-scarce areas[2]. Any inability to come up with solutions could lead to major social unrest. All these developments mean that the environmental (investment) sector can be expected to grow robustly over the next 20 years.

Which companies make up the environmental sector?

The main areas are energy (efficiency) and alternative energy sources; water-supply infrastructures, water-treatment systems and utilities; air pollution control and waste management. About 1 400 companies worldwide can be said to have at least 20% of their business exposed to dealing with environmental issues.

What potential does the sector offer for growth and outperformance?  

SRI funds provide a response to environmental challenges by enabling investors to direct investments towards environmentally-friendly solutions. Since environmental problems cannot continue to be ignored, the sector can offer growth for the coming decades at a rate exceeding that of the rest of the economy, helped by legislative and regulatory initiatives to clean up water and air pollution and deal with climate change.

This means that certain environmental funds’ outperformance versus the MSCI World index in 2013 could be a harbinger of a continued spurt.

[1] The IPCC is a group of more than 200 experts from around 40 countries.

[2] Bank of America Merrill Lynch ESG & Sustainability report, “A Blue Revolution – global water”, 7 Nov 2012

Alexandre Jeanblanc

Investment Specialist, SRI

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