Sustainability is at the heart of effective future-proofing. As Biden executive orders come into play in the US and the EU Sustainable Finance Disclosure Regulation shifts the global market, there are two questions we should ask. First, what means of business will stay standing? And what seedbeds present key opportunities for diversification, investment and business strategy?
Expectations are evolving across the globe
There is an increasing amount of data available that reinforces the reality of the climate emergency — and few can ignore it now.
One by one, investors, businesses and whole countries are charting a course for greener waters. For some it will take time but as regulations intensify in Europe and North America, it will drive the trend forwards. And the more climate commitment there is from countries who have the largest carbon footprint, like the US and China, the more global the impact will be.
New businesses and tech companies are determined to innovate in this space, capitalising on the changing expectations of consumers, who are more and more conscious of where they spend their money. Such consumers are demanding transparency around company practices, such as where their waste goes, and will pivot to another brand if they see a greener or more socially responsible alternative.
This is not yet the dominant attitude of consumers in every country. But it is increasingly the attitude of investors looking to get ahead of the curve, including the largest asset management group in the world, Blackrock.
The Middle East is on the move
While much of the world may look to the West to lead the way, sustainability progress is surging across the globe. The Crown Prince of Saudi, for example, has announced The Green Initiative. This calls for the kingdom’s largest listed companies to invest $1.3tn to achieve ambitious sustainability targets, including increasing the share of renewables in their energy mix from 0.3% to 50% by 2030. Over 20 companies have already agreed to this, including oil behemoth, Aramco.
The Green Initiative doesn’t stop there, pledging to plant 10 billion trees in the coming decades and increase the protected areas of Saudi’s land to 30%, protecting wildlife and preventing desertification. Saudi is investing heavily in green hydrogen too, and has the infrastructure and natural resources to do it.
Historically-oil and -gas countries are realising that sustainability is the future because all signs are pointing that way. And while a few pockets of people will continue to cry conspiracy or consider sustainability of secondary importance, the profits of tomorrow will lie with those who mitigated risk early, identified the opportunities early, and acted before the tide followed.
KAUST is one of these organisations. It has integrated sustainability into the infrastructure of its university and has dedicated several research centres to drive innovation in desert agriculture, desalination, solar energy and clean combustion. Another is the Red Sea Development Co. which has inaugurated its first 100% renewable bottled water plant in Saudi.
On a grander scale, Neom’s The Line project looks to create a circular carbon economy for a new city of a million residents, while preserving surrounding ecosystems and wildlife habitats. The profits of the future belong to such ventures.
Perspective is shifting from obligation to opportunity
Changing ESG fund regulations and consumer expectations require many companies to pivot from business-as-usual to an intentionally sustainable business strategy. But the businesses that win the greatest success will be those who aimed higher than keeping the good will of investors and customers, and instead sought to actively solve sustainability challenges.
This is where many investors are turning their gaze. Katherine Collins, co-manager of the top-performing Putnam Sustainable Leaders (PNOPX) and Putnam Sustainable Future (PMVAX), told Barron’s that “we’ve spent a lot of time talking about the floor of ESG, about regulation and compliance and data standards. I worry that if we only focus on the floor, we’re going to miss looking up at the sky and what’s actually possible.”
The same Barron’s interview featured Jon Hale, Morningstar’s sustainability research chief for the Americas, who gives an overview of investor activity: “We saw record flows, more than $50 billion, into sustainable mutual funds and exchange-traded funds—that’s nearly a quarter of all the money that went into funds in 2020. It’s more than 10 times that of 2018, and more than double the $20 billion of 2019.”
Collins attributes the influx of funding to a shift in perception, to thinking of “sustainability as completely core to business strategy and, therefore, to investor considerations.“
So now investors are keeping their fingers on the sustainability pulse, particularly when it comes to rumblings in renewable energy, automation and new technologies. Artificial meat, too, is garnering much attention, though present innovators haven’t yet discovered how to lower production costs. Such opportunities may need time to incubate before anyone can hatch a globally successful solution. But that is no reason to sit on the sidelines and wait.
The market is poised to leap into a sustainable horizon. Investors are scanning for those who dare to diversify, and the greatest successes will belong to those who committed their organisation strategically, culturally and operationally to this inevitable future.
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