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The sustainable investor for a changing world

A secure world
Forward thinking | Article - 6 Min

How can our inherent need for security be fulfilled in a changing world?

The UN’s Declaration of Human Rights recognises that human well-being is intrinsically linked to our economic, as well as our physical, security. In recent years, our economic and physical security has been threatened. The pandemic taught us that we can’t afford to be complacent about health, while geopolitics has weaponised vital commodities such as energy and food.  

As investors, we have the power to positively influence change. While investment alone can’t prevent threats, it can mitigate some of their economic consequences, minimise exposure to foreseeable risks and help accelerate the transition to a more secure world. We explore some of the most pressing examples below including food and health and energy security, considering both the opportunities and the challenges for investors.

Low-carbon. Low risk.

Climate change is one of the biggest threats to our planet, impacting livelihoods, health and income, and nature. For this reason, naturalist David Attenborough has called climate change ‘the biggest threat to security that modern humans have ever faced’.

While policymakers across the world are taking action to achieve a greener future, the lack of an organised approach risks creating competition for people, power and resources and could hamper the realisation of global green objectives. For example, China dominates the mining of rare earth minerals, critical to the production of many clean energy technologies. The US’s Inflation Reduction Act (IRA) is seeking to counter this by strengthening its domestic supply of critical minerals and using tax incentives to shift the production of clean technologies to the US. However, this landmark legislation has provoked fears of a subsidy race, which could impact other nations that are less able to compete financially.

It is not yet certain how the ‘race to green’ will play out, but the vast sums of financing being set aside for climate mitigation and adaptation should, overall, be welcomed. A lower-carbon economy will not only help minimise the threat of climate change but will also create a multitude of opportunities for investors.

Safety in self-sufficiency

Changes to the geopolitical landscape have placed energy security at the top of many political agendas. Countries are seeking energy independence by increasing the self-sufficiency of supply. Encouragingly, this strategy aligns with commitments to transition to energy away from fossil fuels and towards cleaner sources. So, two problems are being addressed through the same mechanism.

But energy security is not only about supply, cost is also a factor. While the price of oil and gas has accelerated rapidly, renewable energy technologies are becoming cheaper. This further reinforces the argument to accelerate the energy transition, with renewables acting as a shield against fossil fuel price volatility. And evidence is starting to suggest that the energy transition is gaining traction. In its World Energy Outlook, the International Energy Agency states that if current growth rates for the deployment of solar photovoltaic, wind, electric vehicles and batteries are maintained, the energy transformation will be faster than projected.

So, with the path to energy security now running in parallel with the road to net zero, the outlook for renewable energy and energy-efficient solutions has undoubtedly brightened for investors.

Agricultural innovations lead to revolutions

The issue of food security has been growing in importance for several years, as converging factors have served to escalate the problem.

The frequency of extreme weather events has doubled this century, meaning agricultural regions in many geographies have either changed or shrunk altogether, reducing overall crop yields. The pandemic then severely disrupted food and agricultural supply chains, a situation that has been further exacerbated by geopolitical disputes and rising protectionism.

These constraints have not only limited food supply but have pushed up food prices, further threatening food security worldwide. An issue that was highlighted by the Food and Agriculture Organisation, which suggests the number of people unable to afford a healthy diet has risen to almost 3.1 billion.

Yet, there are emergent solutions that could transform agricultural food systems and make them more resilient. Agritech innovations – ranging from lab-grown meat to vertical farming and high-precision agricultural technology – are key to ensuring food security. Meanwhile, using technology to limit waste could also help ensure that more of the food we produce reaches the end consumer.  

Ultimately, we need to rethink all parts of the food supply chain. And by funding this agricultural revolution, investors could harvest the benefits.

How to achieve health equity?

The pandemic was a tragic reminder of the vulnerability of our health and healthcare services. But threats to health security aren’t solely posed by infectious disease, they can also stem from environmental, lifestyle and economic factors. The relationship between income and health outcomes is shockingly consequential. Even in the world’s richest nations, there can be huge life expectancy gaps between the most and least affluent areas – for example, some put the gap at 15 years in the US.

Health equity – where everyone has a fair and just opportunity to attain the highest level of health – will only happen if we also consider damaging factors beyond the health sector. The quality of the air we breathe can have a significant impact on human health. Damaging air pollution is tied to the burning of fossil fuels. The remedies we are already using to battle climate change will also improve air quality.

Lifestyle choices are also important influences on health. According to the World Health Organisation, 60% of factors related to health and quality of life are correlated to lifestyle. For instance, sugar-sweetened drinks can contribute to obesity and obesity-related conditions such as diabetes and cardiovascular disease.

While public policy and regulation can be part of the solution, there are also investment opportunities to tackle health challenges head-on. Like-for-like replacements for unhealthy ingredients are being developed and technology is using behaviour patterns to encourage people to focus on healthier habits. Within the healthcare sector, companies are rolling out telehealth to provide better care for underserved populations or are improving delivery mechanisms to transport medicines to harder-to-reach areas. Investing in healthcare innovations, and supporting necessary lifestyle and environmental transformations, can result in better health security for all.

Stopping the surge in cybercrime

Technology is providing essential solutions to many of the world’s security challenges, but the rapid deployment of new technologies is also creating its own set of threats.

We are increasingly living in an internet-enabled world – where banking, domestic chores and work can all be conducted online. Even how we spend money can be digital. But this new online world is being exploited by cybercriminals who are employing innovative tactics to pose security challenges to businesses, governments, and individuals alike. Malicious software (‘malware’) can be used to steal data and damage or destroy computer systems; phishing is a social engineering attack where the victim is duped into providing personal data, such as login credentials and credit card numbers; and ransomware targets organisations by encrypting sensitive files and demanding a payment for the decryption key. Unsurprisingly, this has given rise to a suite of cyber solutions – from ensuring passwords are robust and unique, to the necessity of installing sophisticated security software.

Meanwhile, developments in artificial intelligence (AI) have fuelled market expectations that AI could soon play a disruptive role across many industries, optimising productivity through rapid data interpretation, content generation and process automation. Amid the excitement, concerns have also been raised about the threat of workforce displacement, and the potential for subversion and misuse. For example, actors are concerned that AI replicas of themselves could be used without consent or remuneration.

Overall, the opportunities presented by technological developments are likely to outweigh the threats, but scrutiny and understanding of the technology landscape will become increasingly critical to ensure all angles are being considered, particularly when it comes to sustainability.

Investing for a more secure world

While the world is far from secure, the breadth of potential solutions is encouraging and can be seen as an opportunity for investors. Assessing each of these security issues from multiple angles can uncover ways for investors to catalyse change and potentially improve portfolio outcomes.

In particular, promoting a low-carbon, environmentally sustainable and inclusive economy will help achieve a more secure world. At BNP Paribas Asset Management, our goal is to integrate sustainability dimensions across our investment strategies, according to the four core pillars of our approach. And for investors wishing to go further, we also offer solutions that incorporate a sustainable investment objective.

    Disclaimer

    Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
    Environmental, social and governance (ESG) investment risk: The lack of common or harmonised definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may be based on metrics that may share the same name but have different underlying meanings. In evaluating a security based on the ESG and sustainability criteria, the Investment Manager may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may for the time being be incomplete, inaccurate or unavailable. Applying responsible business conduct standards in the investment process may lead to the exclusion of securities of certain issuers. Consequently, (the Sub-Fund's) performance may at times be better or worse than the performance of relatable funds that do not apply such standards.

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