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Impact investment is one of the fastest growing investment sectors with the market valued at over $500 billion as of 2019 and this is expected to double by 2020. This is the same upward trend being experiences by the broader ESG investment sector, valued now at $20 trillion. This growth is partly because, as research suggests, investing sustainably improves returns compared to conventional investments and, we believe, due to the seven following trends…

1. Good Governance

The 2008 financial crisis, can be partly attributed to institutional culture and conduct and thus it starkly highlighted how good governance is systematically important. Subsequently, we have seen an increasing emphasis on improving corporate governance both from a regulatory standpoint and as a benchmark for investors and other stakeholders.

2. Population Growth

The world’s population is projected to grow to 8.6 billion by mid-2030, 9.8 billion by mid-2050 and 11.2 billion by 2100. More people mean greater strain on sanitation, food production, waste management, power distribution and water supply – which means major development, investment and innovation in these areas will be increasingly crucial.

3. Changing Demographics

Average life expectancy is rising in developed countries, and the United Nations estimate that there will be 2.3 billion people in the world aged over 65 by 2050. People are consequently becoming increasingly aware of sustainability issues, from climate change to income inequality and these issues will have a direct impact upon people not just their children. Moreover, Millennials and Generation-X are now taking over from the Baby Boomers in positions of influence in business, finance and politics, with a greater focus on the environment and sustainability and also are the ones driving investment in this sector.

4. Climate Change & Growing Environmental Concerns

Climate change is now, for the most part, universally acknowledged and we are beginning to see the effects across the globe.  The severity of the threat and the cost in inaction is driving change both at a supra-national and national level, including international agreements such as the COP21 Paris agreement, which aims to keep the rise in world temperatures below two degrees. This is leading to enhanced regulation in the private sector also and forcing companies to employ more environmentally friendly policies or face fines and sanctions.  However, it is not just emissions which is now in the spotlight, a myriad of environmental concerns, from deforestation to plastics pollution are being highlighted and there is now more than ever greater impetus to act.

5. Global Value Chains

In an ever-increasingly connected world, corporations value chains are increasingly global. Companies need to ensure they have global oversight as mismanagement can prove costly, especially if they are found to be having a negative environmental impact or employing child labour practices for example. This links to the fact that social media creates a more transparent world, highlighting these issues to a large audience.

6. New Energy Sources & The Cost Of New Technology

Aside from changes being driven by our increasing awareness of climate change, economics is a major driving force behind the transformation of global energy markets, with renewable energy sources becoming cheaper and scalable. If we take solar power as an example, a technology that has been around for 40 years, but was historically it was incredibly expensive to implement. Now, due to technological advances, there has been an 82% reduction in the cost of solar technology since 2010, and a further 40% reduction is expected over the next 10 years. It is now and has been the fastest growing source of new energy worldwide since 2016, outperforming growth in all other renewable sectors, with the global value of the market predicted to reach $422 billion by 2022. Goldman Sachs and Bloomberg New Energy Finance have forecast that over $3 trillion will be invested in the solar sector over the next 20 years, and that it will ultimately account for 35% of all new global energy generation capacity.

7. Social Media Is Highlighting Environmental & Social Issues Globally

Social media, aside from the billions of selfies we take every day around the world, enables political action and has the power to change socio-cultural norms. The arresting images of environmental degradation across the globe are now seen by millions of people and this has the power to change consumer preferences. Interlinked with this are the many groups raising awareness of the damage we are doing to the environment, for example Extinction Rebellion, who use social media as a platform to powerful affect.

 

Together these factors are fueling the growth of this sector and are why we believe that investors who put sustainability at the heart of their investment strategy will see the rewards in the short term and position themselves to enjoy an upwards trajectory that is likely to continue for the foreseeable future.



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