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Sustainability and Investing

Dr Marc-Olivier Buffle, Senior Product Specialist – Global Environmental Opportunities Fund at Pictet Asset Management, outlines why sustainable investing no longer means sacrificing returns


Thanks to the emergence of a thriving environmental products industry, investing to safeguard the planet no longer means sacrificing returns.

We believe the solution to that conundrum has already begun to take shape. With governments and businesses responding to growing public pressure to reverse ecological degradation, a distinct and attractive group of environmental equity investments has emerged. These are companies that combine strong environmental credentials with innovative products and services designed to safeguard the world’s natural resources.

A burgeoning environmental products industry

Once a niche activity, environmental investing is now moving firmly into the mainstream. There are several reasons for that.

To begin with, society’s attitudes towards protecting the planet have changed considerably in recent years. That’s partly because a growing proportion of the population has personal experience of the damage ecological degradation can cause. In 2015, pollution killed nine million people – three times more than AIDS, tuberculosis and malaria combined.1 Floods and droughts have brought untold misery to millions more. Social media has also helped shape world opinion. Thanks to platforms such as Twitter and Facebook, people can now voice and share their concerns about pollution and sustainability in a way they couldn’t before.

Also giving sustainable investing a shot in the arm is a sharp drop in the cost of technologies such as renewable energy, water recycling and agri-tech. In the US wind power is now cheaper than any other form of energy.

Stars aligned for environmental industry

The combination of people power, government policies and economics has given rise to a thriving – and eminently investable – industry for environmental products and services. China’s generously-funded anti-pollution drive, for example, is likely to boost the prospects of firms that develop environmental technologies such as filters for engines and industrial applications for pollution control.

More broadly, as corporations worldwide embrace sustainable business practices, publicly-listed firms specialising in the development of a broad range of environmental technologies have mushroomed, while the number of patents filed for environmental products over the past decade has more than tripled2.

Overall, we estimate that the environmental products industry is already worth some USD2 trillion, and can grow by about 6-7 per cent per year. That should matter to investors: companies operating in this sector should, according to our estimates, see sales growth of 6.5 per cent per year, outpacing that of firms in the MSCI World equity index by more than 2 percentage points3.


[1] The Lancet Commission on pollution and health, 19.10.2017 [2] WIPO [3] Median 2016-18e sales CAGR (%) in local currency. Source: Bloomberg, Pictet Asset Management

 

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