CLIMATE 2020 SUPPORTER

Investing in our future

The creation of a truly sustainable economy will require businesses and investors to become more attuned to the planet’s frailties and more responsive to public opinion

9th November 2018

A tidal power turbine on a test platform in Canada. Tidal power is in its infancy, a renewable energy resource with massive potential but high technological barriers  © iStock

CLIMATE 2020 SUPPORTER

Investing in our future

The creation of a truly sustainable economy will require businesses and investors to become more attuned to the planet’s frailties and more responsive to public opinion

By Hans Peter Portner
Head of Thematic Equities, Pictet Asset Management

Danica May Camacho was born on 30 October, 2011, to the sort of fanfare rarely seen in Manila’s crowded public hospitals. That’s because she represented a global milestone – her birth brought the world’s population to seven billion.

It was, without doubt, a joyous occasion.

But it also served as a reminder of the challenges posed by ever more people competing for the world’s finite natural resources.

The arithmetic of population growth is certainly daunting. In less than 30 years’ time, the planet will be home to nine billion human beings. And a larger proportion of them will form part of the middle class.

That is certain to put even more pressure on the environment, testing it to breaking point.

To their credit, governments are responding to this looming problem with well-designed policies. But for the world economy to become truly sustainable, it needs its businesses – both large and small – to change their approach.

It’s a major undertaking, not least because short-termism plagues corporate decision-making. Yet there are encouraging signs that companies could soon become the solution rather than the problem.

One catalyst for change in business behaviour is public opinion. Discontent with pollution and environmental damage is building. Surveys such as National Geographic’s Greendex poll reveal that people are increasingly fearful of the impact environmental factors will have on their lives. Moreover, 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

Other studies consistently show that consumers are more likely to buy goods and services from companies that have strong environmental credentials and shun those 
that don’t.

In response to public concern and more muscular environmental regulation, a growing number of companies are embracing what has become known as the ‘circular’ model of sustainable business.

Under this approach, firms are turning their backs on ‘take, make and dispose’ modes of production, and replacing them with processes that minimise waste, boost recycling and make more efficient use of land, raw materials and energy. The execution of such plans has generally been impressive.

Data compiled by Bloomberg New Energy Finance show that businesses and public agencies bought more clean energy than ever before this year, agreeing to purchase 7.2 gigawatts of clean energy so far in 2018, breaking the previous record of 5.4 gigawatts for all of 2017. Among the biggest purchasers were US corporate giants AT&T Corp, Walmart, Microsoft and Facebook.

Elsewhere, Dutch engineering group Philips and French auto maker Renault have each implemented policies under which they recondition parts – or entire products – that have reached the end of their useful lives so that they can be re-used or re-sold.

Renault says its auto remanufacturing plant at Choisy-le-Roi uses 80 per cent less energy and 92 per cent less chemical products than its traditional sites.

These are not isolated examples. According to the International Organization for Standardization (ISO), the body responsible for setting environmental benchmarks for corporations across the world, the number of firms achieving the required standards for sustainability has risen tenfold since the end of the last decade. Worldwide, there are now more than 350,000 companies that have received the ISO 14001 sustainable business certification.

Innovation and conservation
But businesses’ role in safeguarding the world’s natural resources isn’t limited to embedding sustainability across their production and distribution chains. It also extends to ramping up investment into new environmental technologies.

Speaking to US lawmakers in 1965, it was the then President Lyndon Johnson who warned that reducing humanity’s ecological footprint would require “not just the classic conservation of protection and development, but a creative conservation of restoration and innovation”.

Johnson did not live to see the technological progress he envisaged. But he might have been encouraged by what has unfolded over the past 10 years or so. In that time, a new industry of environmental products and services has begun to take shape.

With governments squeezing the fossil-fuel sector and corporations under pressure to embrace sustainable business models, investment has flowed into energy-saving and recycling technologies, renewable power and pollution control.

Evidence of this innovation can be seen in the sharp rise in the number of patents filed for environmental products over the past decade. Figures from the World Intellectual Property Organization (WIPO) show that patent filings for environmental technologies are running at an annual rate of 14,000 worldwide, more than double the number 10 years ago.

Energy efficiency is one area that has reached critical mass thanks to investments in new tech. In heavy industry, for example, energy is being saved by replacing traditional electric motors – which account for up to 70 per cent of a manufacturers’ energy use – with smarter versions. It is estimated that every US$1 spent on this new breed of electric motor can result in a US$30 saving in electricity costs over the device’s lifetime.

The efficiency drive is also evident in the world’s cities. Electric public transport, energy-efficient residential and commercial buildings and street lighting are becoming a reality in urban centres right across the globe. The full implementation of energy-efficient technologies could cut energy costs by about US$17 trillion worldwide by 2050.2

Meanwhile, in agriculture, companies have commercialised a raft of sophisticated software and GPS guidance systems that promise to vastly improve the efficiency of farming and food production. Even if only 10 per cent of US farmers use GPS for planting seeds, it could save 16 million gallons of fuel, four million pounds of insecticide, and two million quarts of herbicide per year.3

Business part of the solution
To those sceptical of capitalism’s capacity for change, sustainable business is a contradiction in terms. They’d argue that company executives, hounded at every turn by demanding shareholders, cannot realistically be expected to put protecting the planet on a par with profit growth.

Yet the notion that big business can never become a guardian of the environment is in need of revision. On a number of fronts, the corporate world is beginning to take its responsibilities seriously.

UNA-UK thanks Pictet Asset Management for its generous support for this publication

 

  1. The Lancet Commission on pollution and health, 19.10.2017
  2. The Global Commission on the Economy and Climate
  3. US Department of Agriculture