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How companies are leading the transition
Article published in Le Temps, 23 January 2023
In order to meet future challenges, today’s economy needs a profound transformation to become sustainable. This new direction will benefit innovative companies that make these changes possible, as well as investors who integrate these transformation mechanisms into their management process.
Until a few years ago, sustainable investment was a topic that many investors considered peripheral. These financial products had a reputation for low profitability, which is why interested investors were primarily from the impact investment market. Most others continued to invest in conventional investments.
Since then, numerous studies have shown that sustainable investments are in fact no less profitable, and there is even growing evidence that sustainability can increase the chances of future gains. The reasons for this are simple.
In 2023, we find ourselves in the midst of a new industrial revolution, with current transformations comparable to watershed moments such as the digital revolution. The transition to a cleaner, greener economy is likely to follow this pattern, moving slowly at first and then with inexorable force.
The early signs of this change are already visible today, driven by the ever-decreasing costs of sustainable technologies – for example solar energy, now one of the cheapest energy sources in the world, or batteries, which enable electric vehicles to compete with combustion engines, and plant proteins. These changes are leading companies to integrate these innovations into their business models, allowing for economies of scale and further price reductions. Ultimately, this will lead to a fundamental transformation of energy systems, land and ocean use, and materials.
Read more: Planetary boundaries: the safe operating limits of humanity Lombard Odier
A new reality requires a new investment strategy
For investors, the sustainable economic revolution means that they must adapt their investment strategy to this new reality. What was promising in the past may no longer be a driver of success in the future. While a greener, cleaner, more electrified economy requires significant investment, the funds will need to be invested in very different technologies and business models than in the past. Understanding the business models of the future and building sustainable portfolios based on this knowledge is key to successfully participating in the transition. If we do not anticipate these changes in advance, they will be nothing more than missed opportunities or, worse still, will catch us off guard.
A telling example concerns food systems: according to the United Nations, the world’s population has just passed the 8 billion mark; by 2050, 9.7 billion people are expected to populate the planet. In order to continue feeding the world’s population, additional arable land will be needed. This in turn means land clearing, biodiversity loss and increased CO2 emissions. If we extrapolate the land requirements associated with our current food system, taking into account rising incomes and population growth, this need will be greater than the available land on the planet. A transformation of food systems is therefore not only desirable, but inevitable. This is clearly expressed in meat production, which requires billions of animals and the use of millions of hectares of land for pasture and feed, rather than feeding the world’s population directly.
Read more: The role of investors in the transition towards sustainable food systems Lombard Odier
A USD 1.5 trillion-a-year market is emerging
The transition to plant-based alternatives is an important element in the sustainable transition. Our population’s craving for meat has led to increasing development of plant-based alternatives. At the same time, efforts to combat food waste are also being stepped up in order to put an end to the loss of costly resources.
Innovative companies that establish new sustainable food solutions along the value chain are therefore highly sought after as investments. Investors can also benefit from this revolution and the introduction of new methods of agricultural economics, new ways of eating and technologies that align with global climate and nature protection goals. According to our estimates, this paradigm shift towards new food systems creates multiple growth opportunities that represent an annual turnover of USD 1.5 trillion worldwide by 2030.
Read more: Phenix – the start-up helping everyone fight food waste Lombard Odier
Energy and the circular economy
As with sustainable food systems, energy systems will have to evolve. The companies sought after in this domain are those whose solutions and technologies enable the economy to move away from fossil fuels and towards new, cleaner and more environmentally friendly forms of energy. Also included are companies that are successfully transforming their business model in highly polluting sectors by investing in lower carbon technologies. In materials, companies that move towards a circular economy, enabling better recycling, design, resource efficiency and improved production processes, as well as new usage patterns, are also desirable. The aim is to ensure an adequate supply of materials needed for future technologies.
Regardless of the chosen segment, companies with an innovative approach to sustainability should outperform their conventional competitors in the future, to the benefit of nature and society – but also of wise investors.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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