Never let a Good Crisis go to Waste

by Matthew Smith, Head of Sustainable Investments, Storebrand Asset Management

As winter thaws into spring and spring turns to summer it is often a good time to reflect on the direction of societal changes occurring around us. Develop­ment figures for 2017 have been rolling in over the past few months, giving us a quantitative indication of the progress being made on key issues such as cli­mate change, inequality and consump­tion of materials. Unfortunately, the results have been far from uplifting.

“2017 marked yet another year of sharp increase in plastic production, which has now doubled since 1998”

Promotion

One of the more sobering figures to come out has been that on Global CO2 emissions. After holding steady for 2015 and 2016, they again rose in 2017, demonstrating once again the enormity of the task facing the international community if we are to limit temperature rises to 2 degrees over pre industrial levels. There has been no lack of attention on the issue, no lack of urgency on the part of the international community and no lack of scientific consensus on the reasons for climate change. Still emissions continue to rise.

Similarly, 2017 marked yet another year of sharp increase in plastic production, which has now doubled since 1998. Of all the plastic ever made only 12% has been recycled with 79% ending up in landfills or the natural environment. Yet we continue to make more, every day and every year, and the consequences for marine life in particular become ever clearer. On inequality, despite repeated attempts to break the glass ceiling, figures from the Global gender Gap report 2017 show the global gen­der income gap is actually widening.

“Sustainable solutions are not merely good for the world, they are also good for the companies that bring them to market.”

In the face of these developments, it is of course easy to lose hope. For in­vestors questions may arise as to the accuracy of development forecasts and if the economy really is going through a meaningful green transition at all. If the ruling paradigm continues to be business as usual, aren’t there considerable financial risks associa­ted with investing in sustainability? Paradoxically the deeper the environ­mental and social problems the world is facing the greater the comparative advantage can be for companies att­uned to a long term perspective and capable of providing solutions to our most pressing dilemmas.

Sustainable solutions are not merely good for the world, they are also good for the companies that bring them to market. Renewable energy is quite simply a better product then fossil fuel alternatives. Cleaner, soon to be cheaper, and less resource intensive. If CO2 emissions continue to rise, nati­onal regulation will also need to come sooner and heavier than expected, with obvious advantages for renewa­ble energy producers.

The plastic catastrophe in our oceans can only be solved by better design, use and recycling of plastics on land. Companies that deliver these solutions stand to gain through a rapid expansion of the market, and an increased investment appetite from cities struggling with waste manage­ment. On Gender, fresh research from a range of credible and respected sources shows that companies with a high proportion of women in leaders­hip positions consistently outperform their competitors. Add to this that the opposite is also true, companies with low representation of women perform poorly, and the widening income gap can actually result in a greater compa­rative advantage for companies where Gender Equality is the norm.

So while economic and social develop­ment may not always move as rapidly as we would like, and sometimes even in the wrong direction, there is no doubt as to the end game. The greater international cooperation over the last couple of years, illustrated by the Paris Agreement and the UN Sustainable Development Goals, is sure to move the world in a more sustainable dire­ction. The lower we stoop before the green transition occurs, the swifter and more dramatic the change must be. For investors, it has always paid to be ahead of the curve and oppor­tunistic in trying times. Or as Winston Churchill so clearly put it – Never let a good crisis go to waste.