A powerful transition is happening globally. Megatrends including climate change and rising inequality are driving the shift from a depletive, industrial economic model to one that is replenishing and sustainable. Old ways of doing business are going by the wayside. A sustainability wave is rapidly building.
In this article, we highlight examples and drivers of this transition to a more sustainable economy to illustrate its global scale and fast evolution.
First, let’s explore some key challenges that are propelling this transition, which in turn are creating demand for more sustainable solutions.
Consumption and urbanization: Population growth, the wealth effect on consumption patterns, and rapidly increasing urbanization all are driving a need for new and refurbished infrastructure as well as the development of tools and technologies designed to contain environmental damage. Cities need clean and reliable power, clean water and wastewater systems, food delivery systems, waste disposal, and pollution management, and as more people move to metropolitan areas, these needs are ever more urgent. Almost two-thirds of the world’s population will live in urban areas by 2050. By 2030 there will be 43 megacities — urban centers with populations of more than 10 million. (There were just 10 megacities as recently as 1990.) In the more distant future, the vast majority of people will live in megacities.
Pollution: A staggering 91 percent of the world’s population lives in places where bad air quality exceeds World Health Organization pollution limits. More drought-induced wildfires are creating ever more pollution and disrupting energy delivery. In a significant change, China has largely banned imports of plastics and paper waste from the rest of the world, causing a build-up in countries that can no longer export their trash.
Water stress: A quarter of humanity faces looming water crises. Water scarcity is already a problem in parts of California, South Africa and India, and the World Resources Institute reports that 33 cities, with a combined population of more than 255 million, currently face extremely high water stress. Hundreds of water systems today serve unsafe drinking water, in California and elsewhere. Boston’s new Seaport District and Miami Beach are being challenged by rising sea level, which is creating the need for new water infrastructure to prevent flooding.
In this context, it is not surprising that the World Economic Forum (WEF) consistently ranks extreme weather, failure to mitigate and adapt to climate change, natural disasters, and water crises among the top five risks facing the planet. For more reading on the issues encompassing the transition to a sustainable economy, my colleague Julie Gorte’s recent article provides a useful primer.
The massive environmental issues we face are presenting great challenges to our global economy; however, they are also spurring a growing set of solutions. Innovative companies are emerging and expanding their services to help address them, and we believe these providers will benefit from long-term sustainability trends — that’s why our Pax Global Environmental Markets Fund invests in them. Let’s take a look at some of the investment opportunities we’re seeing in the areas of food, transportation, water, and energy and resource management.
Energy & Resource Management
From an investment context, this landscape provides differentiated and strong growth opportunities for companies with leading solutions to urgent challenges with increasing economic ramifications. Drawing on a large and experienced investment team, the Pax Global Environmental Markets Fund identifies the highest conviction opportunities in these areas of the transition, constructing a resilient portfolio of companies that we believe are high quality and show attractive valuation opportunities.
The recent developments we’ve discussed here suggest that momentum in sustainability solutions is building and reaching a broad scope of companies and industries. Are you ready to catch the sustainability wave? It’s here.
The top 10 holdings of the Pax Global Environmental Markets Fund as of 6/30/2019 are as follows: Schneider Electric SE 3.7%, Linde PLC 3.6%, Waste Management, Inc. 3.3%, Siemens AG 3.2%, Suez 3.2%, TE Connectivity, Ltd. 3.1%, Xylem, Inc. 3.1%, Danaher Corp. 2.9%, IngersollRand PLC 2.9%, American Water Works Co., Inc. 2.8%. Holdings are subject to change and are not a recommendation to buy or sell any security.