rethink sustainability
Accelerating the transition to a sustainable future
Lombard Odier Investment Managers
We are all perilously aware of the challenges our world is facing. Our current economic model is not sustainable. People are protesting, our natural resources are being overexploited and climate change is an ever more threatening reality. Today, in industrialised economies, we are dealing with polarising inequalities that must be tackled. However, regulators, consumers, technology and investors can all work together to accelerate the necessary changes. But how?
Rethinking capitalism
Capitalism must change. And this means that the way companies operate, their supply chains and their impact on the environment must be revolutionised. Things are changing and investors are paying attention. They are waking up to the fact there is great risk in not adapting to the future. Regulators, companies and Central Banks are beginning to understand that the climate catastrophe and rising inequalities bring with them great financial and social risks that cannot be ignored. Companies will have to adapt to retain access to capital, talent and their customers. In order to create sustainable growth models, we have to transition to a model that delivers growth without simultaneously imposing a negative footprint on the environment and society.
We call this Decoupling. And companies that have the vision and foresight to develop sustainable growth strategies will lead the way. We call these types of companies Eagles. They are providing technological solutions, innovative products, and transitioning to sustainable business models. Other companies who are in denial and feel they can continue without changing, face an existential risk. We call these Ostriches. Companies with their heads in the sand.
Moving towards a better future
Mass consumption, waste, inequalities and climate change require our urgent attention. The move towards a circular economy can help address some of these issues. We must move away from our current wasteful economy to a circular system whereby we reuse, recycle and radically reduce our waste. And technology will be our enabler.
Today technology is being used to deal with plastic waste. Science-based companies are leading the way in helping to develop technologies that make it easier to recycle plastics and reuse them in new applications. Recently, Carlsberg revealed the world’s first paper beer bottle and it has committed to reach zero carbon emissions and a 30% reduction in its “full-value-chain” carbon footprint by 2030. Nevertheless, even the tech industry has a dark side. Electronic waste, if left unprocessed, is a severe health and environmental hazard. E-waste accounts for only 2% of solid waste, but 70% of hazardous waste in landfills. What’s more, computers, mobile phones and other electronic products use a staggering 320 tonnes of gold and more than 7,500 tonnes of silver annually worldwide (GeSI). Yet there are companies such as Umicore that are recycling precious metals and investing their budget into R&D (research and development) projects for clean mobility, recycling and extending the shelf life of products. These technologies will help us move towards a lean, shared economy.
Protecting ourselves
Extreme climate events have become more and more frequent over the last decade. Our natural resources must be protected, how we live and construct our cities needs to evolve and we have to develop a smart, digitally enabled future. Sea levels continue to rise and coastline cities and their inhabitants are more and more at risk. Rapid urbanisation has reduced natural flood defences due to the heavy use of construction materials such as concrete, metal and asphalt that stop soil from absorbing rainwater. As such, we must plan and build cities that deliver flood prevention, water storage, and re-use that water in times of drought. Sponge Cities, pioneered in China and now being implemented in Europe, offer a sustainable urban planning model with permeable infrastructure that holds, cleans and drains rainwater. Companies such as Arcadis are creating technologies to build porous roads that absorb water and cool the environment, are designing plant-covered rooftops for water collection and recycling, and are developing urban wetlands that retain and filter water. These developments offer an opportunity for companies and sectors to flourish in the future whilst protecting people and the planet.
Feeding a growing population
The agricultural industry has been under the spotlight for some time now. Much has been published on carbon and methane emissions, the labour intensity of the industry (70% of global freshwater resources) and the astronomical levels of food wastage in industrialised countries. Studies have shown that 65% of losses occur during post-harvest and processing. The industry’s high environmental impact, due to nitrogen and photosphere fertilisers ending up in biosphere, waterways and oceans has severely disrupted marine and aquatic systems and caused dead zones where aquatic life can no longer thrive. With a growing population, we have to develop sustainable food systems and move from a carbon-intensive economy to a clean economy. This challenge must be tackled at every part of the supply chain, by using precision agriculture to produce food more efficiently, by reducing food waste through smart packaging, frozen foods and better supply chain management, and smarter choices – such as the promotion of alternatives to meat.
By using digital technologies to optimise the sustainable production of crops to increase crop yields, we can do more with less. Companies such as Yara are paving the way to smart farming using technology to radically improve how we farm and feed the planet.
The time has come to embrace the sustainable story. Sustainability goes further than morals and ethics – for investors, we believe, it will be source of major returns in the future. And it is the fiduciary duty for investment professionals to find companies that are not just focussing on profits but are also ensuring that these profits are sustainable in a world challenged by changing demographics, major environmental issues and inequalities.
Welcome to the next economic revolution.
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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