D-cipher: How active management and engagement can help investors navigate long-term decarbonization trends

In our latest D-cipher video, we discuss the important relationship between investing and sustainability as companies grapple with the challenges presented by the 3D Reset. Active management and engagement are crucial in evaluating businesses’ longevity in light of the long-term trends of decarbonization, deglobalization and demographics.

18/03/2024

Authors

Whitney Sweeney
Sustainability Investment Director, North America

We believe the 3Ds have significant long-term implications for the global economy. How companies address them could be crucial for the durability of their businesses, and impacts economies across the world.  For instance, companies need to consider if their business model will be successful in a very different demographic environment. When supply chains are pressured or must be shifted, how will a company attract and retain workers? And on the decarbonization trend, if companies have made a net-zero commitment, how are they changing their operations to meet this commitment? 

While the 3Ds are closely connected, today, I’ll focus on decarbonization. As companies navigate the challenges of the 3D Reset, every decision they make will impact the world in some way, whether that be positive or negative. Every company has externalities they impose on the environment and society, and as stakeholders grow increasingly aware of these costs or benefits, companies will be either rewarded or held accountable for them. 

In recent years, the investment opportunity in environmental solutions and decarbonization has evolved, allowing investors to not only find opportunities in companies which produce goods and services that directly contribute to the climate transition, but also those that are successfully decarbonizing their own businesses. We believe active management and fundamental research could allow investors to identify and invest in companies that are well-positioned to benefit from decarbonization, potentially experiencing lower risks, cost advantages, and stronger network effects related to net-zero trends.  

In addition, being active goes beyond how you research and select the assets to invest in, it’s also about being active through engagement. Asset managers are entrusted to deliver long-term and durable returns. So when we engage with a company, we want to understand how they are considering and mitigating the impact of a transition on their stakeholders and wider society. By holding management accountable, thoughtful stewardship supports companies in building businesses that are competitive and durable. Active engagement is about working to strengthen the long-term value of your investments.

So, in conclusion, when dealing with the long-term trends of the 3D Reset, investors should consider that through active management, research and engagement, asset managers can identify those companies that are poised to benefit from these trends, mitigating risk and enhancing value.

Authors

Whitney Sweeney
Sustainability Investment Director, North America

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