At Mirova, the socially responsible investment arm of Natixis Global Asset Management, they firmly believe that the financial industry, and especially the investment industry, plays a significant role in solving the problems arising from the unsustainability of the current economic development model: climate change, the depletion of natural resources, the imbalance between growth and debt, and the decorrelation with the real economy, amongst others.
The philosophy applied by Mirova in its strategies is based on the conviction that the integration of sustainable development themes into investment decisions allows them to offer solutions in responsible investment. In order to identify the companies that manage future challenges effectively, Mirova experts have developed a unique approach to economic analysis based on eight sustainable development themes: energy, mobility, building and cities, resources, consumption, health, information, and communication technology.
The Energy Challenge
The main challenge for achieving a sustainable energy model is reducing dependence on fossil fuels while fostering access to energy for populations still relying on wood and coal combustion.“Coal has been losing ground to natural gas as a source of energy. Coal powered plants can easily be converted from coal to gas which, in addition to reducing carbon dioxide emissions, extends the life of the power plant and lowers the cost of operations,” says Kenneth Amand, Client Portfolio Manager at Mirova. “These are economic forces that will be hard to fight without substantial coal-power subsides for which there will be little public appetite.”
According to Armand, it would only be logical to expect the wealthier and larger nations globally to bear the biggest weight of building a low carbon economy, as besides being the biggest polluters, they already have the infrastructure in place to develop new energy resources and technology.
As regards the recent US withdrawal from the Paris Climate Agreement, at Mirova they believe that businesses looking to lower their carbon footprint will be at a short-term disadvantage competing with less scrupulous businesses willing to pollute despite climate change. “For the world, we believe that there are opportunities lost – discoveries and advances that could have come from the climate change leader it had in the US, one rich with intellectual and financial resources. Forcing an involvement in antiquated technologies such as coal or oil might adversely affect the US’s ability to remain a leader in the future low carbon world. While the US has good green technologies, such as Tesla and First Solar, it has relatively light regulations, especially on social issues. Europe, on the other hand, has strong regulations forcing most corporations to take Environmental, Social, and Governance criteria into account in all industries.
As for advances in renewable energy, Amand points out that, although the cost of windmills and solar panels continue to fall while their reliability continues to rise, the issue of energy storage remains to be solved. “Storage is critical for energy sources that are intermittent, like wind and sunshine. This demand for storage has fostered a frenzied research and development effort; we would be amazed if a solution were not found in the short term. Storage of energy needs to be portable and less than USD 150/kwh, a point at which gasoline will be rendered too expensive.”
Another branch of research focuses on tidal power and seeks mainly to increase its efficiency.In addition, there is another race focused on studying the products and materials used in industrial production as a means to cutting costs. “Tesla’s giga-factory is one effort. Trying to convince Bolivia to mine its lithium reserves is another.”
Solving the Mobility Issue
The increase in the population moving into the cities is making these crowded.There is scarcely enough capacity for this increase on most public transportation systems, let alone enough room for every inhabitant to drive and park their own vehicle. With this backdrop, electric, self-driving cars seem to offer the best solution for non-point pollution and transportation with start and end points as diverse and dynamic as the people they serve. “Every major automotive company and virtually every technology giant is, in one way or another, pursuing self-driving car technology. In fact some of the major automakers are preparing for this eventuality by stepping out of the race to the biggest,” Amand points out.
The Change in Homes
Most households around the world are preparing to improve their energy efficiency. Thermal insulation of a house provides sufficient energy savings to cover the cost of the renovation carried out in the house.Similarly, LED bulbs, lower power appliances, and smarter devices are making homes more energy efficient. As regards the issue of space, building upward is the best way to use limited city real estate and conserve energy.
Water Conservation and Optimization of its Consumption
Although two-thirds of the planet is occupied by water, very little can actually be used for human consumption and agriculture.Arabic nations spend a significant amount of their annual energy consumption desalinating ocean water for drinking and servicing their cities. “The US uses about 10% of its energy production replacing water spilt through leaky and old pipes. Mexico has determined that childhood obesity can be connected to soda consumption in lieu of clean drinking water. Today, a tax against sugary beverages is levied to pay for filtration systems to be put in state schools.” Amand points out.
The Paradox of Consumption
The number of people purchasing in large shopping centers is getting lower each year. However, consumption rates haven’t fallen. “They’ve migrated back to the catalog. However, that catalog is no longer the Sears and Roebucks book of the past, it’s Amazon.com, Etsy, ebay, and the websites of most designer labels. The smart companies have found ways to make their store fronts an extension of their digital catalog. From high-end designer clothes to basic electronics and food products, the world is seeking a balance between eRetail and storefront retail. Where will the balance land and who will be the winners?” wonders the team at Mirova.
Increased Expenditure on Health
Each year, a growing number of people reach retirement age, starting a new chapter in their lives, rich in social and cultural experiences.To maintain their quality of life, sometimes they simply require small adjustments, such as the need to correct eyesight, failing due to the passage of time.Nearly half of all people in retirement use some sort of corrective lens. “As people get older, diseases once rare and oft unheard of are becoming daily facts of life. Medicine has become both better at serving the masses, with quicker more efficient eye care, and better at serving individuals with devices uses to determine specific dosages for individuals are treatments based on a larger set of inputs.”
Information and Communication Technology
At present, the most relevant trend in information management is cloud migration, an environment in which software can be easily upgraded, enabling better control of cybersecurity problems and fraudulent practices such as phishing and spam. Other additional benefits include lowering the cost of energy and the cost of maintaining equipment. “Moore’s Law has come to an end, transistors will get no smaller and likewise computer processors, as we know them, won’t likely get any faster. As such, new ways will be discovered to reduce the time data are processed. Cloud computing helps here as well.”
Investment and Environmental, Social, and Governance Criteria
Finally, Amand reviews the current scenario of sustainable investment: “On the financial side, Europe is leading responsible investment but things are moving in the US as well. China has a strong industrial power and strong investment in green technologies but strong social risks. Implementing ESG factors is not something countries do, but rather something asset managers and corporate boards do. For asset managers, these factors can help the manager unearth advantages and disadvantages a particular business has, given real-world implications on its business. For corporations, ESG can be a guide to testing whether all aspects of their business are properly aligned with sustainable goals. However, some countries and securities administrations have set forth more robust disclosure policies, like the EU which has some of the strongest disclosure policies in the world.” Amand concludes.