Still worth investing in sustainability in 2023?
Economic factors, such as inflation, rising rates and supply chain disruptions have been top of many investors’ minds in 2022.
You may ask, in such a volatile economic environment, if it is worth it for investors to think about sustainability and ESG at all.
I would say yes, in fact it is crucial for investors to think about how these economic factors will affect longer-term structural trends, such as the low carbon transition.
Changing energy economics
With rising energy prices, political momentum for decarbonisation has slowed.
But importantly the private sector continues to push ahead, helping close some of the gaps between the ambitions of global leaders and corporate readiness for transition.
Changing energy economics also affects how companies will look to decarbonise, with higher energy prices incentivising improvements in energy efficiency. Technologies like heat pumps are becoming more viable compared to alternatives. The adoption of technologies will not just affect the companies developing or producing them, but across the value chain.
Rising demand for sustainable food and water
The global population is expected to increase 40% from now to 10bn in 2050, while getting richer as living standards grow. This will drive the demand for food, while the physical effects of climate change, such as rising temperatures and changes to weather patterns, puts pressure on supply. Huge amounts of investment will be needed for the world to have sustainable food and water. With these needs come opportunities, for companies who can come up with the technologies and innovations to meet it. Recent food price inflation has accelerated these structural trends, driving a focus on food security.
The importance of human capital management
It is not all about the environment. The cost of living crisis has intensified social stresses. Few governments have the fiscal capacity to absorb shortfalls in household budgets. Companies are coming under pressure to ensure vulnerable workers are protected – whether through increasing wages and benefits for their own employees or their responsibility to workers in supply chains.
Companies that are better at managing human capital may be well-placed to navigate the challenges posed by the complicated macro environment. This issue appears to resonate with investors in Hong Kong – in our Global Investor Survey in 2022. Human capital management was the issue most selected by Hong Kong investors as an important issue to engage with companies on.
I hope this video has showed you that ESG factors are not things to think about in isolation – they are core to informing our view of the world and how to invest.
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