A recently published report by the UN Environment Program (UNEP)1 sheds new light on the speed with which the global economy is depleting Earth’s natural resources. The study presents for the first time a detailed and comprehensive look at the ‘material intensity’ of the world economy.
The picture that emerges is, of course, a central reason for the adoption of the Sustainable Development Goals by more than 190 countries in December 2015 in Paris as part of COP212: Over the last 40 years, the world’s population has almost doubled, the global economy has expanded more than threefold, and so has material extraction. The report warns that “the global economy now needs more materials per unit of gross domestic product (GDP) than it did at the turn of this century… and is already surpassing some environmental thresholds or planetary boundaries.”
Global consulting firm McKinsey & Associates predicts a new era on the horizon —the ‘Resource Revolution’.3 McKinsey believes winning businesses will redesign products and services using approaches such as optimization, circularity and waste elimination. As outlined in the UNEP report, material consumption is a barometer for environmental stress, and waste and pollution represent natural resource inefficiencies. From an investor’s point of view, optimizing the use of resources can make financial as well as environmental sense.
At Impax Asset Management, the investment philosophy that we apply to the Pax Global Environmental Markets Fund (PGRNX) centers precisely on these urgent themes. We recognize that an unprecedented opportunity lies ahead for innovative companies with a focus on natural resource efficiency. Similar to the benefits of sophisticated information technology, advances in environmental technology are fueling a changing landscape for natural resource efficiency.
We define the opportunities within the environmental markets through four broad categories: Energy, Water, Waste and Food & Agriculture. The list of companies within these categories is varied and deep, and growing fast—1,500 businesses across the globe of varying size, focus and end markets.
In our view the best opportunities in Energy are not in conventional energy, but in sub-sectors such as Energy Efficiency and Renewable Energy. Examples include a U.S. automotive company that produces components which help vehicles achieve rising fuel efficiency standards and lower CO2 emissions; and a wind farm developer and operator in Portugal with a global portfolio of installations that generates renewable electricity for millions of households.
Water treatment and pollution control is an urgent need and fast growing sector. Much of the global water infrastructure is old, often leaking, or in some countries, still being built. Investment opportunities include a U.S. company that specializes in ‘all things’ water, from pumps for flood mitigation to building hybrid auto/water tunnels to smart water meters; and a U.S. manufacturer of water and fluid related engineering equipment for optimized flow and metering.
Recovering resources is often more profitable than producing new materials. Recycling and reuse is a powerful way to reduce the impact from material use on our planet. Investment opportunities include a Belgian materials technology company which produces automotive catalysts and recycles rare materials from discarded smart phone batteries and other electronic equipment, and a U.S. packaging firm which specializes in corrugated materials and sources 45 percent of its fibers from recycled content.
Feeding, housing and clothing an increasingly populous planet requires greater efficiency and less waste across the food, agriculture and forestry markets. Investment opportunities include a U.S. packaging company which helps to reduce food spoilage and materials use through innovative packaging; and a fish farm in Norway which has collaborated with the World Wildlife Fund (WWF) since 2008 on sustainable aquaculture practices.
Resource optimization is now firmly on the policy radar for governments globally. We believe that environmental challenges and the opportunities to mitigate these challenges are currently the strongest they have been for many decades. Ian Simm, Chief Executive of Impax, predicts that “an amazing opportunity lies ahead for the private sector to mobilize capital to help address environmental problems and lay the foundation for sustainable development.”
The statements and opinions expressed are those of the authors of this report. All information is historical and not indicative of future results and subject to change. This information is not a recommendation to buy or sell any security.