A look at sustainability

There is no doubt that it’s an extremely exciting time to be alive.

The rate of technological change is advancing faster than ever. Furthermore, scientists believe that we have exited the Holocene, which we have been in for the last 12 000 years or so, and we have now entered the Anthropocene where humans, and human-led behaviour, are having the single biggest impact on the planet’s climate and ecosystems.

The fact is we only have one planet earth, and while there are admirable forays being made into the realms of space beyond Planet Earth, the overwhelming sense is that our planet is precious and that we are at a crucial moment in time when it comes to preserving it as a sustainable place for human survival.

With that in mind, we take a look at some of the biggest sustainability themes playing out today and where the most focus is on research and technological advancement in this area so that investors can gain access to that and, more importantly, participate in its advancement.

• The global population is exploding
  
  The global population is growing exponentially. The global population hit 1 billion around 1804. By 1960, this number had risen to 3 billion. There are currently 4 times the amount of people on Earth than there were one century ago, and predictions are that we will break the 9 billion barrier by 2050.
  
  
• Increased migration due to geo-political risks and resource scarcity
  
  Another interesting field that we are seeing is the research around human migration. A lot of this is around geo-political risks and we have recently seen a lot of that in the news. However, there is also a clear trend of migration due to resource scarcity – rising temperatures, increasing instances of drought and most importantly water scarcity and water risks.

Developing an understanding of sustainable development – and whose responsibility is it?

It’s important to have a common understanding of what sustainable development is. The definition taken from the Brundtland Report from the World Commission on Environment and Development defines sustainable development as development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs.

This speaks directly to the real-world notion of stewardship. We want to leave a world in which our children and grandchildren will be able to thrive. UNICEF estimates that about 1 billion children are currently highly or extremely exposed to climate change risks – so this is clearly an urgent issue to address.

This also tells us that climate change is not just an environmental concern, but a human as well, which  leads into an issue that we have spoken about at a few of our responsible investing summits: You cannot be a sustainable company if you are operating in an unsustainable society. So ultimately the responsibility rests on all people, governments and businesses alike.

The greatest perceived risks – shifting away from climate-related issues

Looking at the World Economic Forum Global Risk Framework which ranks perceived risk, we have analysed their movements from 2019 – 2020, with the most notable shift beingthe increase in the risk of infectious diseases. This perceived risk increased dramatically in 2020, which is not surprising given the Covid-19 pandemic.

Other risks considered to be the highest perceived global risks include weapons of mass destruction and interstate conflict, which is likely to have increased further in the wake of what we saw in Afghanistan recently. However, it’s interesting to note that the perceived lower risk associated with some of the environmental issues, which were the highest perceived risks in 2019. These include things like the natural resource crisis, biodiversity loss and extreme weather – and the shift is probably the result of a zero-sum effect in light of the increased focus on the infectious disease risk over the past few years.

It is for this reason that many believe the COP26 meeting in Glasgow this November will be a disappointment, as most countries have potentially shifted their focus away from climate-related issues to their healthcare systems and kick-starting their economies post-Covid-19. However, this does not discount the importance of the climate-related risks as perceived risks.

“Code Red for Humanity”

Over the past decade, the Intergovernmental Panel on Climate Change has adjusted its description of the cause of climate change, becoming increasingly convinced of the role that human influence has played. In the 2021, report, now referred to in the mainstream as “The Code Red for Humanity”, stated that “It is unequivocal that human influence has warmed the atmosphere, ocean and land…”, showcasing just how extreme the problem has become.

The good news: The role of tech is creating opportunity for change

There are incredible opportunities in the space of technology when in comes to renewable energy and this trend is spilling over into the global investment industry as well.

According to Morningstar, sales of climate transition strategies occupied six of the top-10 best-selling fund slots in Europe in the first quarter of 2021, with ESG strategies at large attracting more than £100bn.

Another lead indicator in terms of where technology is going, is patent filings.

If we go back to the turn of the century and look at patent filings and the deployment of wind energy technology, it peaked in around 2006/2007 and wind technology has really taken off. In South Africa’s last REIPPP, wind came in at approximately 64c per kilowatt hour – by far the cheapest.

The International Energy Agency has highlighted that patents for new Renewable energy technologies are far outpacing any other technology, including fossil fuels.

Interestingly, The Economist recently cited that the fastest growing job in the next decade will be wind turbine technicians, with the third fastest growing job to be solar panel engineers!

Following the flow of global venture capital is also highlighting a distinct increase in spend on green technology. Global venture capital deal flow in climate tech in 2021 is already at the third highest level it’s ever been at and we are only just over halfway through the year.

Climate related risks facing investment managers today

Our latest annual Responsible Investment Report which looks at 47 managers around the world and what they are doing from a Responsible Investing perspective, has revealed some interesting insight in terms of where the biggest concerns are for investment managers currently.
When asked to list their top three climate-related risks or opportunities, the overwhelming responses included issues like:

• Carbon regulation and pricing: South Africa will be committing to certain emission reduction targets, which will feed into national policy and regulation so this is something that fund managers will be watching closely, especially in terms of things like carbon tax.
• Environmental concerns: This includes things like extreme meteorological events, climate change, global warming and temperature rises as well as water security.
• Commodity risks: These include fossil fuel risks, resource scarcity and depletion and resource recycling and depletion. In terms of opportunities, as the world moves towards greener technology there will opportunity for South Africa as a source of the resources required to manufacture and produce these technologies.
• Energy transition: South Africa still has a very long way to go in terms of managing the transition to greener energy and the process is likely to be quite complex. However, there are some huge opportunities developing in this space as the government makes more of an effort for accommodative policy on renewable energy and the involvement of the private sector in the space.
• Vehicle and transport electrification: this is an industry that is growing globally and is likely to spill over to South Africa with time- creating an open field for new entrants and responders.

So, while the concern and risks around climate change remain grave, it’s extremely encouraging to see some of the positive developments taking shape globally and within South Africa that will hopefully lead to more investment from both public and private sectors