Sustainable investing is one of the hottest topics in the investment world today and will continue to be for years to come, presenting exciting opportunities for investors.
This is the view expressed by Hendrik du Toit, CEO of international asset management firm Ninety One, during a recent discussion on the development of investment trends.
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“Sustainable investing is much more than selling a few stocks in a portfolio,” says Du Toit.
Without ignoring the effect of renewed inflation, the liquidation of government policies to stimulate economic recovery and higher interest rates, Ninety One has identified investment in sustainable companies, and companies that can change their operations to become sustainable, such as a great opportunity for investors.
Consequences of prominent human actions
Du Toit says the Covid-19 pandemic played a role in raising awareness of sustainability and a sustainable world by focusing humanity’s attention on how human actions impact the world.
“It affects everyone,” he says, “from the rural poor in Africa and fishermen in Asia to the people who live in big European cities.”
Without saying so, he managed to dispel the notion that sustainability is an emotional issue driven by even more emotional people.
What he did say out loud is that a change is needed in the underlying sustainability movement.
Read: Ninety One Becomes SA’s First Signatory to ‘Net Zero’ Asset Managers Initiative
“Ninety One risked speaking out against short-term goals and measurements. We believe that real change will come as a result of a planned and orderly transition.
“It must be planned properly and practically or it will not be successful. We are looking for companies that have long-term plans.
“Reporting short-term emission levels and targets is not enough. In our investments, we would like to see a suitable transition plan, ”says Du Toit. “The potential for winners is huge.”
Carrot, no stick
He adds that, for the first time, the major economies have incentives to change.
“It will impact all companies and economic actors: the value of the companies they own, investment portfolios and [in terms of] tax.
“For the first time, some kind of price [being] put in the way companies act.
“We all appreciate the seriousness of the problem. It will be a key issue in the next few years in any economy, ”says Du Toit, mentioning for the second time that just selling some of the offenders’ shares is not enough.
More importantly, it presents exciting opportunities for investors. “The market can be very excited about the winners and the losers. The potential for winners is huge, ”says Du Toit.
It refers to the evolution of technology, which began to gain ground in 2000, to bring this point home.
“At that time, no one could imagine that a company like Microsoft would become as valuable as it is today.
“The winners of sustainability will be very valuable, the losers will be punished harshly,” says Du Toit.
‘For investors, decarbonisation is important’
Deirdre Cooper, portfolio manager of the recently launched Ninety One Global Environment Fund, says that for investors, decarbonization is important because the transition to a low-carbon economy requires a radical overhaul of the energy system, the transportation system, and many others. aspects of the global economy. .
“This is changing the risk and return potential of individual companies and industries.
“Global efforts to reduce carbon emissions are driving large capital flows, driving innovation and creating a lasting tailwind for selected companies,” he says.
“When the pandemic hit, a lot of people thought that climate goals would be set aside. In fact, the opposite happened.
“In the last year alone, the EU has launched a Green Deal, the United States has rejoined the global fight against climate change and China, the world’s largest CO2 emitter2 emissions, has been committed to being net zero by 2060.
“There has been more progress in the last year than in the previous 20 years,” says Cooper.
In a recent research note, he attributed the faster pace of change to increased political will, positive regulatory momentum, extreme weather events caused by climate change, and increased public awareness of environmental issues.
Read: 10 Sustainability Terms Every Investor Should Understand
A portfolio focused on decarbonization offers investors the potential to gain exposure to an area of long-term structural growth, offset carbon risk in other investments, and generate a positive impact by financing companies that address one of the planet’s greatest challenges. .
“For investors, the decarbonization-driven structural growth trend is just beginning,” according to Cooper.
Great growth opportunity
She points out that the world is investing just $ 600 billion to $ 700 billion per year, compared to the $ 4 trillion to $ 5 trillion needed in annual investment by 2030 to reach net zero by 2050.
“Our mission at Ninety One is to allocate capital in a sustainable way. What that really means is that we want to allocate capital to those companies that we believe are investing not only for their shareholders but for all stakeholders, ”says Cooper.
His research note reveals that the Ninety One Global Environment Strategy fund has increased its assets under management to $ 3.7 billion since its launch in 2019. Its goal is to invest in companies that are the biggest beneficiaries of decarbonization and those with the largest positive impact.
“We believe that companies whose products and services help the global economy make a sustainable transition to net zero have the potential to grow revenues and profits faster than the market average,” says Cooper.
Trifecta of benefits
“We think that should be good for the return on investment, the planet and future generations.”
One of the advantages of sustainable investing as a theme is that it includes companies of different sizes in different industries and regions, he adds.
In addition to the obvious businesses like renewables, the trend toward global decarbonization also requires tech companies that are making factories more efficient, chemical companies that are reducing the carbon footprint of industrial processes, software companies and semiconductors that are enabling the electrification of transport and logistics companies that are reducing emissions from freight transport around the world.
“Decarbonisation is a very disruptive process, so we are looking for leaders who operate in different sectors.
“In many areas, the market has yet to appreciate the growth opportunity that decarbonization is creating,” according to Cooper, “while some other stocks appear expensive.”
Let’s give Du Toit the last word: “Solutions to challenges will be found. In the 1980s, acid rain was a big problem, but it was tackled with success.
“The opportunities for investors are exciting.”