Capital IdeasTM
Investment insights from Capital Group
ESG
Emme Kozloff
Cheryl Wilson
Julian Abdey
Damir Bettini
Nick Grace
Ask 100 investors to give one example of a sustainable investment opportunity, and there’s a good chance many will mention something related to clean energy. Conversely, the odds of them citing “financial inclusion” or “health and well-being” are quite low. And yet, just like clean energy, these and other investable themes have a profoundly significant role to play in the world’s transition to a more sustainable future.
The United Nations estimates there is currently an annual US$4.3 trillion financing gap for the world to deliver against key environmental and social sustainability targets by 2030.1
We believe it will take a wide range of innovative companies to bridge this gap. This presents opportunities for investors that go beyond those typically considered in sustainable strategies.
Investing across multiple sustainable investment theme helps capture the interconnected nature of sustainability. It could also be advantageous for investors by helping mitigate the kinds of market challenges witnessed in recent years. By contrast, single-theme strategies can be volatile, because their exposures can be quite concentrated.
For example, some clean energy-oriented strategies have endured a bumpy ride with significant declines relative to the broader market in part due to rising interest rates; notably, this has hurt solar project earnings. Unintended style bias is another potential risk sometimes seen in single-theme strategies: historically, growth stocks (especially from the technology sector) have proven popular holdings.
Beyond the large investable universe and potential diversification, we believe a multi-thematic approach offers another important benefit: adaptability. At Capital Group, we have identified seven sustainable investment themes - mapped to the UN Sustainable Development Goals - that are, in our view, broad and durable enough to enable our investment professionals to adapt as innovations occur and regulations evolve over the coming decades.
Some of the more compelling opportunities of coming decades, we believe, should be reflected in our seven themes — among those companies that successfully innovate and adapt to structural change and disruption as the world transitions to a more sustainable future.
1. Source UN, as at October 2022
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