This decade is key if we are to achieve the necessary progress in tackling the multi-decade challenges facing the planet we live on and the people we coexist with. In 2021, financial markets were largely driven by short-term considerations, but for long term economic prosperity we need to look beyond the near term to address vital issues. For this reason, we focus on companies leading the transition to a more sustainable world. This requires a long-term outlook, in line with solving vital issues facing climate change, inequality and biodiversity. The imperative for sustainable investing has never been greater.
Action on climate change
COP26, the intergovernmental climate change conference that took place in Glasgow in November 2021, was a milestone in the acceleration of policy change to address emissions reduction and biodiversity decline. While the outcome of the conference could have gone further, the direction of travel is clear. We have held the view for some time that there needs to be global collaboration around carbon pricing and there was positive momentum from COP26 around these policy measures. Governments pledged to revisit and strengthen their 2030 targets to align with the Paris Agreement goal of limiting global warming to 1.5 degrees Celsius above pre-industrial levels. We are hopeful that the ambition gap will be addressed. We expect to see greater collaboration, led by the reiteration of joint commitment from the US and China, and that there will be a rapid but just transition to a low carbon future.
As investors, we need to see clear actionability and irreversibility from companies as they move to decarbonise their processes. Companies able to tangibly reduce carbon emissions, rather than offset, will be better positioned to deliver sustainable returns as increasingly we see externalised costs becoming an internalised cost of doing business.
In 2022, we except to see further policy acceleration to address the current mispricing of the use of nature. It is vital that companies move to live within planetary bounds and mitigate their environmental impact, both from a resilience perspective but also from a financial one.
This also applies to our own company, of course. Jupiter is a signatory to the Net Zero Asset Managers Initiative and has committed itself to align its operations and its investments with net zero emissions by 2050 or sooner.
It is important that the transition to a low carbon future is a just transition, uniting climate change with social justice. At COP26, for the first time the Just Transition was core to the agreement, acknowledging the importance of fairness in how the burden of addressing climate change is borne. Compensating vulnerable nations for loss and damage caused by climate change has also started to enter the dialogue and sets a trajectory for commitments on financing by richer nations to lower-income countries. The developed world has enjoyed more than a century of unprecedented economic growth at significant environmental cost. It is imperative for the global climate action success that developing nations avoid a similar environmental crisis.
Action on inequality
In addition to investing in companies leading the transition to a more sustainable world, we also seek companies which are driving a transition to a more inclusive world. Covid has exacerbated and revealed social inequalities. The economic shock caused by Covid-related closures has fallen disproportionately on vulnerable groups. In the US, the unemployment rate skyrocketed at the start of Covid, across the board, but the impact was significantly greater for those individuals with less than a high school diploma. Similarly, during the pandemic when children were unable to attend school, access to technology became imperative for the continuance of education, again disproportionately impacting those with more limited resources.
Covid has led to the increased vulnerability of many women, particularly in terms of financial independence, and to many exiting the job market altogether. Worldwide, women’s labour force participation has rapidly declined. This has a wider reaching social impact, as there is a correlation between female underemployment and children living in poverty. We look for improved wage transparency, and higher participation of women in the work force as an indicator of high-quality businesses.
Action on biodiversity
Addressing the loss of biodiversity is increasingly becoming a key topic for policy makers. Half of the world’s GDP depends on biodiversity, yet we continue to use natural resources at an alarming rate. COP15, the intergovernmental conference on biological diversity, started in Kunming, China, in October 2021, and will continue there in April 2022. Our hope is that lessons learned from climate change will be usefully applied to the urgent need to reverse loss of biodiversity. Companies’ impact on nature will increasingly be re-evaluated as a cost – just as has happened with carbon.
Just as with carbon, the internalising of externalities around biodiversity will present both opportunities and risks. While companies have been producing carbon data for a long time, the measurement of companies’ impact on nature is nascent. There are already frameworks coming into force in the next few years to improve standardisation of disclosure, notably the Taskforce on Nature-related Financial Disclosures (TNFD). This is a positive step but one that needs to be followed with clear actionability and irreversibility from companies. Addressing these challenges is of enormous importance now, both for our society, and for our long-term capital growth objective. The imperative for sustainable investing could not be greater.
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A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
This document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with a financial adviser, particularly if you are unsure whether an investment is suitable. Jupiter is unable to provide investment advice. Past performance is no guide to the future. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the authors at the time of writing are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. For definitions please see the glossary at jupiteram.com. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Company examples are for illustrative purposes only and not a recommendation to buy or sell. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. For investors in Hong Kong: Issued by Jupiter Asset Management (Hong Kong) Limited (JAM HK) and has not been reviewed by the Securities and Futures Commission. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI/JAM HK. 28311