Why Environmental Solutions
Global trends have made it evident that the business environment within which companies operate is shifting in favour of those companies that will contribute to the transition toward a sustainable economy.
Investments in clean and green companies are exploding. In 2006, about $52 billion were invested in renewable energy, a 33 % increase from 2005, and in 2007 that number jumped up again to an estimated $66 billion.
The trends that, in our opinion, are most material for an investor include the following:
Demographics:
We see three categories of demographic drivers, whose implications will most significantly shape global markets over the next 5-50 years.
- Aging in the developed world and a youth bulge in the developing world
- Ubiquitous, fast-paced urbanization
- The evolving and critical role of gender
Climate Change:
Climate change is an urgent challenge that affects long-term corporate profitability, and therefore must be systematically integrated into investment analysis. We see three categories of climate change drivers:
- Businesses face uncertainties around the scale, pace, and nature of physical climate change
- Forthcoming changes to the carbon regulatory landscape
- Attitudinal shifts
Economic Development – BRIC Countries:
Over the coming years, the strong growth profile of the BRIC (Brazil, Russia, India, China) countries will have significant social, environmental and economic implications for the entire world. BRIC economies, which have growth rates averaging more than seven per cent over the last 15 years, now account for 44 per cent of the world’s GDP (based on purchasing power parity, or PPP). This represents an increase of nearly 20 per cent in just 20 years.
Directly linked to these trends is the rising demand for the basic necessities of life along with consumer goods. Water, food, and energy are predicted to become increasingly constrained over the next several decades and often the shortages in one can lead to shortages in another. For example, approximately 70 per cent of the world’s current freshwater usage is dedicated to agriculture. With global demand for food projected to grow 70-85 per cent by 2050, a severe shortage of necessary water to feed the global population is likely to result by 2020.
We believe that the intersection of these meta-trends is both broadening and deepening, inevitably creating a new business environment. This new environment favours companies that can provide goods or services to rapidly expanding global markets, while not materially increasing the pressure on an already strained ecological systems. For companies this means focusing on eco-innovation and eco-efficiency.
Eco-innovation (environmental innovation):
New products and processes which provide customer and business value but significantly decrease enviromental impacts. The term is often used to describe a range of ideas, from environmentally-friendly technological advances to innovative paths towards sustainability.
Eco-efficiency: Creation of more goods and services while using less waste and pollution, and encompasses:
- A reduction in the material intensity of goods or services
- A reduction in the energy intensity of goods or services
- Reduced dispersion of toxic materials
- Integration of full-life cycle consideration
- Maximum use of renewable resources
- Greater durability of products
- Increased service intensity of goods and services