2022 was a difficult year with multiple crises, most of which have had both short- and long-term implications for our responsible investment themes: a geopolitical conflict, hyperinflation in energy prices, the lingering effects of the pandemic, and talent turnover
The energy crisis bolstered new climate
policy initiatives in the world’s largest economies to spur the growth of clean energy technologies, as we discussed in our Responsible Investment
Q3 publication. The tax incentives
included in the US IRA are material
and are already starting to encourage
green investments towards the US.
I believe other regions will likely be
forced to match the incentives or risk
green investments moving out of their
region – which in turn will threaten the
energy security they seek. This should
provide a virtuous circle of accelerating investment in the energy transition which should drive down prices and lead to an abundance of cheap
renewable energy globally.
In the last quarter of 2022 we saw
various climate change action and
policies. While COP 27 yielded
little progress on climate change
action, there were positive signposts
elsewhere as Indonesia and other Asian
countries announced international
climate finance deals. As Natalia
Luna explores in the Climate Change
article in this report, while the effort by large economies to reduce emissions that cause global warming remains critical, COP 27 emphasised that more needs to be done for adaptation and to address the risks climate change poses for livelihoods and activities. This is of critical importance for emerging markets, particularly where we expect increasing investor interest and investment opportunities to arise.
Elsewhere in the world, Japan approved
a plan to revive its use of nuclear energy, redrafting an energy policy that was paralysed since the 2011 Fukushima crisis to address a serious electricity shortage in the country. In Brazil, Lula’s return as president is raising hopes for environmental action, particularly on
deforestation in the Amazon.
Arguably, the most important
milestone this quarter came from
the recent COP 15 United Nations
Biodiversity Conference where 195
countries agreed to protect and restore
at least 30% of the earth’s land and
water by 2030. Rich nations also
committed to paying an estimated
$30 billion a year by 2030 to poorer
nations. This is clearly a positive
breakthrough for biodiversity and will
rightly help raise the topic’s profile as
we believe it has material investment
risk and opportunity implications.
The World Economic Forum has
estimated that $44 trillion2 – the
equivalent of about half of global GDP –
is generated in industries dependent on
nature, led by construction, agriculture
and food. Furthermore, according to the
World Bank,3 collapsing ecosystems
could take 2.3% – about $2.7 trillion –
off global GDP by 2030, underscoring
the significant financial cost from
nature loss and highlighting that the
long-term resilience of companies
hinges on maintaining a balance within
nature. Recent research4 highlights that
business investments in nature could
create $10 trillion of opportunities.
In this issue Olivia Watson expands
on this sub theme in her article
on biodiversity as she looks at the
outcomes from COP 15 on biodiversity,
the goals agreed at the conference and
what they might mean for investors.
Finally, Natalia, in collaboration
with Fixed Income analysts Sharon
Vieten and Gregory Turnbull Schwartz,
has written a follow-up article to her
analysis on the state of the hydrogen
theme from our Q3 publication.
This focuses on the challenges of
bringing the market to scale as well
as the investment opportunities we
see in the hydrogen value chain,
particularly in utilities and industrial
gas companies.
RI Research Team philosophy: Educate, Collaborate, Engage
We believe responsible investment (RI) research is fundamental research, so our RI analysts are embedded within the global research team. The team’s philosophy reflects this integration with its mantra: “Educate, Collaborate, Engage”.
Our RI analysts educate portfolio managers and fundamental industry analysts on RI themes and developments based on our intense research in three overarching sustainability themes: climate transition, energy transition, and food and materials transition. We then collaborate with our portfolio managers and industry specialists to highlight risks and opportunities within industries and sectors. Through this collaboration we identify companies we want to engage with on the risks and opportunities we have identified linked to that particular RI theme. Finally, we integrate these learnings into our investment selections and decisions.
This approach allows us to support and provide actionable investment insights. Our overarching sustainability themes are linked to the UN Sustainable Development Goals, which we believe increasingly shape the economic and investment landscape, and our RI thematic research focuses on investment-relevant sub-themes within these.
Our RI themes and sub-themes
Responsible Investment Quarterly Q4 2022
We hope you enjoy reading our analysts’ viewpoints.
