Sustainability in business isn’t only about being good; it’s about making sound business sense. Technologies that address 21st-century challenges could experience lasting growth that creates long-term opportunities for companies and shareholders alike.
View of solar panels and wind turbines located near the ocean from a hilltop location.
Many technologies have emerged to make our planet more sustainable, and more will likely appear over time. Many are the result of innovation and are expected to experience long-term growth – perhaps for decades at least.
This report considers the significance of sustainability from an investment viewpoint, with particular attention paid to technologies and innovations which could mitigate threats to global economic sustainability. Companies which lead in creating technological solutions for sustainability issues could offer attractive long-term investment opportunities.
Sustainability as an Investment Theme Sustainability has become a top concern of businesses and investors in recent years, as growth and profits can only benefit if their operations are sustainable in terms of resources use, human living conditions, or future generations’ interests. Sustainability for businesses extends far beyond their primary activities – it could even impact how their offices or commercial premises are set up or configured or even how products are distributed to clients.
KPMG’s 2020 Sustainability Survey shows that an overwhelming majority of companies now utilize annual reports as an effective method for reporting progress in this regard. Of the top 100 companies across 52 countries surveyed, 80% have published sustainability reports with 98% publishing in the United States alone; 92% in Canada; 85% in Western Europe and 84% in Asia Pacific publishing such reports are also notable figures.
Investors recognize this trend. According to Morningstar, assets held by sustainable funds reached a record high of $1.7 trillion in 2021 – a surge from just under $1 trillion a year earlier – thanks mainly to record inflows, redirection of existing funds towards making sustainability a primary driver, and rising markets.
As part of our March Global Perspective, we explored how climate change is one of the primary threats to sustainable economic development around the world. Additional pressing challenges must also be tackled if we want economic expansion over the coming decades; some examples include reduced access to fresh water resources and waste created by human activities as well as social progress being limited or nonexistent.
Access to freshwater has decreased dramatically over time. Agriculture consumes the greatest share, while manufacturing processes that waste too much water lead to wastage; climate change and industrialization all play a role.
World Wildlife Fund estimates that 1.1 billion people worldwide do not have access to fresh water and an additional 2.7 billion experience shortages at least one month annually. Recent catastrophes such as those witnessed in 2015 and 2019 in the UK; severe flooding across France and Italy since 2017; historic low Rhine levels that led to long-term shipping disruptions; as well as flooding events such as Houston Texas in 2019 with three consecutive “once-in-500-year floods”, remind us this problem does not solely exist among emerging markets.
Water shortages pose another significant threat to China’s economic development. Although China accounts for 20% of world population, they possess only 7% of freshwater resources; additionally, pollution restricts how much freshwater there is available, as 70% of China’s lakes and rivers have become polluted according to World Economic Forum studies.
The World Bank estimates that 2 billion tons of solid waste were produced worldwide in 2016 (the last year for which global data is available), enough to fill 800,000 Olympic swimming pools. While 16% was recycled and 46% was disposed of in ways harmful to the environment by burning greenhouse gases or disposing it in rivers or oceans – at present rates, according to World Economic Forum estimates plastic will outnumber fish by 2050!
There is increasing recognition that social progress issues could also limit global GDP growth potential. Average annual global GDP growth between 1960 and 2000 averaged 3.8% per year while in recent decades this rate has dropped to just 2.9% per annum. According to a March 2021 Bloomberg economists study, gender equality could boost global GDP by $20 trillion by 2050 relative to its base case scenario with gender inequality still present; another Goldman Sachs research indicates closing the 35% pay gap suffered by black women could add $300 billion per annum, or 1.3% of U.S. GDP annually or 1.3% of its $21.4 trillion economy