Ben Constable-Maxwell: Investing in solutions for the planet

05 Mar 2020 Expert insight

Harnessing the power of innovation can deliver positive outcomes, suggests Ben Constable-Maxwell.

Increasingly, charities and other investors are seeking a more nuanced approach to ethical and responsible investment. Gone are the old adages that this simply meant excluding a few stocks in undesirable sectors and that ethical investment inevitably meant sacrificing returns, replaced by a growing demand to embrace strategies that invest for positive environmental and societal impact.

From toxins in the air we breathe to heavy metals in our rivers, there is no shortage of environmental challenges that need to be addressed. Awareness of these issues is undoubtedly rising, as is interest in solving them. Yet, despite this progress, a growing population that consumes more as it becomes richer heaps greater strain on the planet.

There is persistent tension between fostering global economic development and reducing the cost to the environment. Addressing this issue is at the heart of the UN Sustainable Development Goals (SDGs), which codify the world’s most pressing sustainability issues.

In areas where companies can develop solutions that can enable the modern economy while at the same time lowering our environmental footprint, there are powerful opportunities for investment success to go hand in hand with delivering a positive environmental impact.

Innovating for impact

The imperative to address environmental challenges can imply a need for dramatic steps. Yet it can be incremental improvements – evolutions in technology and how it is used, rather than revolutionary technologies themselves – that often have the greatest impact.

Modest advances in the efficiency of ubiquitous systems may well bring larger material benefits than radical solutions in niche areas. Companies that enable others to have a positive impact through the products or services they offer can be catalysts for wide-reaching change.

Generating more from less

Given rising global demand for energy, technological progress is the key to promoting inclusive and sustainable industrialisation. While there has quite rightly been a focus on how we generate electricity, how we use it is often overlooked. But there is great potential to reduce emissions from the existing industrial base by making our consumption more efficient.

The potential impact of retrofitting the world, using technologies that make it more energy efficient, is demonstrated by Schneider Electric, a French industrial group that is heavily involved in the digital transformation of the industrial automation market.

One way in which the company is having an impact is through innovative solutions that look to tap the value of data to maximise the efficiency of systems. From office air conditioning to electricity grids, the systems underpinning the modern economy are increasingly automated and digitised. Being connected to the so-called internet of things means critical data can be collected from across smarter systems and then analysed with real-time information, then used to optimise processes.

More efficient systems that cut electricity use will not only save money for Schneider’s customers but also should result in tremendous environmental benefits. The company aims to reduce the carbon dioxide emissions of its customers by 100 million tonnes between 2018 and 2020. This is equivalent to the annual CO² emissions from 17 million homes’ electricity use.

The scale of the long-term investment opportunity – and positive environmental impact – is clear. IHS Markit forecasts that 73 billion devices will be connected to the internet of things by 2025, up from 27 billion in 2017.

Aspiring for wider impact

This is just one illustration of how a company can deliver benefits for the environment far beyond its own operations. To better gauge a company’s impact, investors can consider how it enables other companies to conserve energy or water, for example, or otherwise reduce their environmental footprint.

There are clearly multi-billion-pound opportunities for innovative companies that can deliver products and services that help solve the world’s environmental challenges. For their shareholders, this means they can aspire to not only achieve sustainable financial returns over the long term, but also to contribute to having a demonstrably positive impact on the environment. Investors can also benefit by providing the finance to enable innovation in return for an agreed income stream (via public bonds or private debt markets), which allows for additional portfolio diversification depending on risk appetite.

Ben Constable-Maxwell is head of sustainable and impactful investing at M&G Investments

Charity Finance wishes to thank M&G for its support with this article  

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