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Sustainability and disruption: Natural twins

Sustainability and disruption are investment themes that have moved rapidly into the realm of mainstream investment.

Investors are taking notice during a time of climate change, shrinking resources, ageing and expanding populations. These developments comprise some of the most complex megatrends humanity has yet confronted — and they all demand innovative but enduring solutions.

At Janus Henderson, we view both sustainability and disruption as necessary. Sustainability helps drive innovation, but innovations must be sustainable to maintain their long-term relevance.

Transport and Energy

Some investment trends are so powerful they are ‘generational’ in nature, for example, the energy transition to a low carbon economy. Energy transitions do not happen often in human history, but when they do they tend to be extremely disruptive.

Take, for instance, the huge growth in electric and autonomous vehicles which is resulting in far more semiconductor content in cars. At the same time, the number of cities committed to combatting air pollution and climate change is swelling.

Progress in this area is being spearheaded by some of the world’s largest players. In Asia, the Chinese government recently made known plans to invest $368bn into renewable energy projects by 2020. Global titans from the private sector are making significant commitments as well. The Public Investment Fund of Saudi Arabia announced this year that Japan’s Softbank “Vision Fund” plans to support a $200bn, 200 gigawatt solar power development in the Kingdom.

Aside from its environmental benefits, to see the world’s largest oil economy so visibly diversifying its energy sources is a very clear warning to those who have yet to adopt a low carbon approach. We expect rapid technological improvements, combined with government support for a low carbon transition, to disrupt companies that are slow to adapt.

Oil and plastics: Going the way of the dinosaurs

Society is now waking up to the downside of its obsession with plastic and the consequent shocking pollution of our oceans. Regulation will doubtless increase and, as oil is a primary raw material in plastic, a global shift away from its use is another negative for the long-term oil price.


Waves of advancement

There are plenty of developments that have already been established and are changing lives today. Every day, we see how technology is now an integral and indispensable part of our lives.

The mobile phone in your pocket is the perfect example, but there is plenty more innovation to come. A further generational investment trend is the fourth wave of computing, where the industrial and technological economies combine.

We are on the cusp of a multi-year trend where the power of computing is applied to a much broader range of industries, machines and consumer goods, with many tech investments addressing more than one sustainability theme.

Semiconductors, for example, are the backbone of a smart and connected world. They are now evolving from serving computing and smartphone markets to adoption by numerous industrial and “internet-of-things” applications. This will lead to the creation of new economic models, and we view this digitalisation as a powerful agent towards creating a more sustainable world.

Road bumps

In the broader market, it is ever more apparent that the fastest growth subsectors are increasingly aligned with sustainability. There is an expanding set of exciting investment opportunities in areas such as cloud computing and artificial intelligence, electrification of transport, energy efficiency and smart cities. There is also the rise of new digital industrial technology, known as Industry 4.0, and significant developments in sustainable infrastructure, financial services, education and research, and healthcare.

Yet in spite of all the innovation, we know that new is not always a smooth path. Not all technological solutions deliver on their promises as intended. Disruptors can struggle to gain traction or be consumed by financing issues if they don’t plot their strategic growth well.

The path ahead

We are living in a period of unprecedented disruption. The future sustainability of the global economy requires change across multiple sectors. To that end, we believe, more and more, that sustainability makes good business and investment sense. The goals of seeking financial returns and doing social and environmental good are no longer in conflict. Climate change and the imperative for sustainability could see an enormous rotation in investment – value will be destroyed in old economy stocks, in favour of a new world order. We turn to face the brave, clean, future.

For more information about our Socially Responsible Investment (SRI) capabilities, please contact our Asia Distribution team:

  • Angel Lee, senior director, Hong Kong
  • Darius Ang, senior sales manager, Singapore

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