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- Earth Day: Investing in our planet's future
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There is no longer any doubt that human influence is warming our planet. If this trend continues, current forecasts predict a global temperature rise of 2.7 degrees Celsius[1] by the end of this century – almost double the Paris climate target[2]. This year, Earth Day is raising awareness of climate change and the goal of preserving our livelihoods with the theme "Invest in our Planet". People, governments, corporations and more are setting a goal to slow down global warming and transform resource use into sustainable cycles. More than ever, this requires everyone's support, but above all investment and capital.
For 52 years, April 22 has drawn attention to the fragility of the Earth's ecosystems[3] – more than half a century in which little has happened. Humans are still consuming fossil resources at a rate that is gradually bringing the Earth and our livelihoods to the brink of collapse. Over 85 percent of our global energy consumption for heating, industry and agriculture still comes from climate-damaging sources[4]. And petroleum products still drive 96 percent of global transportation[4]. However, there is a silver lining, such as the share of electricity generated with low CO2 emissions, which already accounted for 29 percent of the global electricity mix in 2020, and trending upward[5].
Achieving climate neutrality, reducing emissions of greenhouse gases such as CO2 or methane to net- zero emissions, is now high on the agendas of both the German government and the EU Commission. The EU and many other countries have committed to achieving a net-zero economy by 2050, a goal for which policy instruments and regulations are being adapted.
Over 85 percent of our global energy consumption still comes from climate-damaging sources
The transformation that’s being triggered by this process could render old business models obsolete, as the global economy moves away from a linear growth model – dominated by carbon-intensive activities – to a new, more circular economic model which takes into account all costs of the production cycle, including pollution, waste and recycling (Focus on: Earth Day 2022 (dws.com)). The so-called Green Industrialisation requires economic and social change as fundamental as previous waves of industrialisation. And this change will likely accelerate, driven by digitisation, artificial intelligence, automation, biotechnology, fintech and clean technologies.
But a sustainable future society will also have to invest in many other areas of our planet – in restoring biodiversity, protecting the oceans from exploitation and pollution, less social inequality, more respect for human rights, gender equality, cultural integration, and more. It’s a long list. As asset managers, part of our job is to identify the opportunities and risks of these very different developments and make them investable.
‘Bottom trawling’ fishing is a larger source of emissions than air travel
Investing in our oceans via a sustainable blue economy
The way we live and do business will have to change. Time is running out to protect the oceans and coastal habitats, which are being destroyed by rising temperatures, pollution, overfishing, whaling and resource exploitation. Scientists estimate that oceans absorb CO2 roughly two to four times faster than rainforests, but worryingly these ecoystems are being degraded or disappearing at rates four times faster than rainforests[6]. Mangroves – salt-tolerant trees and shrubs that cover estuaries and coastal fringes and provide around half of the ocean ecosystem's carbon storage – have already lost up to 50 percent of their storage capacity since the 1940s due to shrinkage[7]. Industrial fishing is a larger source of emissions than air travel due to ‘bottom trawling’ fishing[8]. Nitrogen-rich agricultural runoff is causing large areas of dead zones. And by about 2050, more plastic than fish by weight is likely to be swimming in the seas[9]. The goal should therefore be to invest in a sustainable "blue economy" in which companies from the shipping, ports, coastal economy, tourism and technology sectors manage the world's waters sustainably.
Technology and digitisation can become a driver of the green industrialisation
Another focus of sustainable investing is on energy generation and climate technologies designed to counteract climate change. Eventually, entire heat and power systems will have to be converted from fossil to renewable sources. To do this, we need intelligent power grids, modern geothermal, wind and solar plants, or hydrogen technology to store surplus electricity, as well as climate-friendly driving and building technologies. New developments must also protect cities in the future from heat and floods or enable large-scale water treatment and desalination.
Digitisation in itself is not very sustainable, considering the massive amount of electricity used by servers, routers, websites and cloud storage. By 2025, they could devour up to 20 percent of global electricity production, according to some estimates[10]. But here, too, hope lies in digital technologies of the future such as artificial intelligence, blockchain or quantum computers, for example, building power grids that can bundle the electricity provided by thousands of renewable energy sources into optimal consumption volumes for businesses and households.
Also the social dimension of climate change can offer diverse investment opportunities
For a fair net-zero emissions society of the future, social aspects are also important. Global warming often has complex social impacts, such as reduced labour productivity, particularly for outdoor workers in the construction and agricultural sectors or deteriorating air quality and related health problems. Education in developing countries can also be negatively impacted: extreme weather events and crop failures can lead to learning disruptions as children – especially girls – are forced to contribute to family incomes.[11] Companies that help overcome such adversities, for example by developing heat-resistant farming methods, are therefore also making an important contribution to a sustainable, social future for our planet.
Global warming can impact labour productivity and can cause health problems
Studies show that companies that focus on sustainable social issues can be more successful[12]. Important social issues for the future include, for example, flexible work-life balance for employees, the promotion of multicultural and gender diversity, compliance with human and employee rights, and fair compensation for suppliers. These are not just moral imperatives; they can also determine a company's economic success and stock market value.
Getting companies to rethink via direct engagement
Investors, including asset managers such as DWS, can play an important role in this transformation's success. After all, as a shareholder, we have a say in the way companies are run. As a proxy and fiduciary for our clients, it is our duty to analyse not only the goal of long-term performance, but also whether the companies we invest in are considering their business model's impact on society or the environment. To exert our influence, we make targeted demands in our engagements with companies or address them at annual general meetings.
There is a lot to do, and the coming years will be decisive in determining whether the Earth's sustainable transformation succeeds. Investors can use their investments to steer capital in the right direction. The range of sustainable investment products is vast. The 52nd Earth Day reminds us once again to focus our efforts on making the world a viable and flourishing home for all – to "Invest in our Planet."
In 2021, we conducted 581 engagements with 471 companies
