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Investing in the future: smart investment trends

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Seb Beloe, head of sustainability research at WHEB Asset Management, outlines a new model of sustainable investment that is leaving traditional negative screening strategies in its wake. In the 21st century, he says, the momentum is with investing in industries that are providing solutions to critical sustainability challenges.

William Gibson the science fiction writer once argued, “The future is already here, it’s just not evenly distributed.” As investors, we are very interested in the future and what it holds, but as Gibson suggests, perhaps it is not as unpredictable as we think it is.

Long-term trends underpinned by science

In fact, the broad parameters of what the future will look like are arguably already well-known. For instance, demographic trends change only relatively slowly. We were able to predict decades in advance that the human population would become predominantly urban in the mid-2000s (actually in 2007).

We can also predict with reasonable accuracy that by 2030 approximately a quarter of the UK’s population will be 65 or older (the same proportion, incidentally, that China will have by that time).  These trends around demographics – principally the ageing of developed and some developing countries – and on-going urbanisation are relatively predictable and provide an important steer as to what the future will look like.

The science that underpins these projections is largely settled and accepted. This is also true for much of the debate about resource scarcity which essentially boils down to there being more people in the future, collectively consuming a lot more stuff.

By 2030 for example, the global population can be expected to be consuming 50% more food globally, 50% more energy and 40% more water. Technological advances can help deliver a portion of this, but a consequence of this escalating demand will be growing scarcity, upward pressure on commodity prices, greater price volatility and real constraints on resources in some areas.

The precise figures and timing of all this are of course impossible to forecast accurately, but the trajectory created by these trends is absolutely clear and the demand for efficient solutions to these challenges all but assured.  

Water scarcity

And there is no shortage of challenges to choose from. Water scarcity is something that will affect over half of the world’s population by 2030.

Polluted water already affects a huge swathe of the developed and developing worlds. Nearly 20% of all of China’s rivers are now so polluted that they are unsafe to touch (let alone drink). As a consequence, China plans to spend an average 400 billion yuan per year from 2011-2020 on water projects. Water is already a $500 billion market with 6-7% annual growth. 

The future is urban

Urbanisation is also a megatrend that is creating enormous challenges for economies in the developing world (all 25 of the world’s fastest growing cities are in developing countries).

The World Economic Forum estimates that the same urban ‘capacity’ including housing, infrastructure and facilities will need to be built in the next 40 years as has been previously been built in the preceding 4,000 years in order to meet projected demand.

Cities are already responsible for 75% of total resource consumption and accommodation and services for all these extra people will need to be provided without putting yet further pressure on already massively strained natural resources.

So demand for smart technologies, whether in reducing heating and cooling costs in buildings, reducing demands for fresh water, limiting air emissions in already polluted urban centres or in managing and recycling urban wastes, will have to grow enormously if the city life of tomorrow is to be tolerable.  

An ageing world

Healthcare, too, is an area that is set to see burgeoning global demand. In developed countries healthcare already represents a massive proportion of overall spending. In the US, healthcare costs accounted for nearly 18% of total GDP in 2011.

People aged 65 or over consume healthcare at a rate three times the average of the population as a whole. At 85 or older, it is six times.

Layer in growing incidence of obesity, which typically increases healthcare costs by 40% compared with normal-weight patients, and the affordability of healthcare becomes enormously challenging. So companies helping to reduce costs either through keep people healthy (weight loss, healthy diets, exercise) or through more effective treatments and shorter stays in hospital will be well-placed to meet this expanding demand. 

Evidence of higher growth

So far the theory stands up in practice with the WHEB investment universe of 900 companies in nine social and environmental themes delivering higher five-year historical sales growth, higher five-year historical diluted earnings per share (EPS) growth and higher one-year forecast sales growth than the MSCI World Index.

Given the steadily accelerating trends around resource scarcity, demographics, obesity and urbanisation, this faster growth can be expected to continue. 

Doing well by doing good

Ethical investors have curiously been largely absent from investing in these areas. The traditional approach to ethical investment, involving screening out the most controversial types of companies (e.g. tobacco, weapons and pornography) and investing in the rest of the market, almost entirely overlooks what is surely the greatest opportunity for investors to make a real difference.

What more profound impact can investors have than investing in industries that are providing the products and services that help meet the critical challenges of our age such as ageing populations, obesity, resource scarcity and urbanisation? Rarely has the old adage ‘doing well by doing good’ been more apposite than in this new model of sustainable investment.

Seb Beloe is head of sustainability research at WHEB Asset Management.

National Ethical Investment Week 2013 runs from October 13-19. Join the debate on Twitter using the hashtag #moneydoinggood.

Further reading:

The sustainable investment tipping point is now

Investing sustainably in an ageing population

Green versus grey infrastructure

‘Saints or sinners’ of ethical investing is out of date thinking

We need expert problem-solvers to build the cities of the future

Articles, features and comment from WHEB Group, an independent investment management firm specialising in opportunities created by the global transition to more sustainable, resource efficient economies. Posts are either original or previously featured on WHEB’s blog or in its magazine, WHEB Quarterly.

Economy

New Zealand to Switch to Fully Renewable Energy by 2035

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renewable energy policy
Shutterstock Licensed Photo - By Eviart / https://www.shutterstock.com/g/adrian825

New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.

New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.

Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.

Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”

The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.

Zero net emissions by 2050

Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.

Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.

She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.

Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”

A worldwide shift to renewable energy

Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.

Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.

Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.

Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.

Sources: https://www.bloomberg.com/news/articles/2017-11-06/green-dream-risks-energy-security-as-kiwis-aim-for-zero-carbon

https://www.reuters.com/article/us-france-hydrocarbons/france-plans-to-end-oil-and-gas-production-by-2040-idUSKCN1BH1AQ

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Economy

How Going Green Can Save A Company Money

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going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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