Existential risks can be a difficult thing for people to wrap their heads around; human society has a tendency to think itself invincible, but in 2020 we were all given an object lesson in how fragile our way of life can be.
In the midst of the Covid-19 pandemic, it was heartening to see how the green momentum that had been accelerating last year was maintained. That was vital, firstly because it’s the only way we can truly address an even greater existential threat than Covid – climate change – but because a ‘green growth’ agenda can be at the heart of the economic recovery.
Capital markets rise to the challenge
Many sustainable solutions are maturing now and have a momentum of their own, particularly the renewable energy sector. Earlier stage technologies will still follow quickly up that development curve, but capital markets now seem emboldened by that opportunity and we think there will be an acceleration of some key trends.
There are parts of the global economy that have proven very difficult to decarbonise, such as aviation and textiles, and even a couple of years ago we would have said that commercially-sustainable solutions to address those challenges were a long way off. Our view has changed, and these areas are perhaps the next areas to experience a step-change in their sustainability.
Already, in the latter part of 2020, there has been an acceleration in capital raisings and IPOs for earlier stage technologies, and we see that continuing into 2021. The type of innovation we anticipate coming to market next year will bring a wider breadth to the investment universe, providing an even broader opportunity set for investors to capitalise upon.
The next wave of innovation
Up until now we have been living in a linear economy, epitomised by a ‘take, make, waste’ model of production that is unsustainable and has been so environmentally damaging.
Yet the transition is already underway to a new model – a ‘circular economy’ – where there is more focus on activities that can return material back to its previous usable state (so more material can be re-used for the same thing rather than being ‘downcycled’) or materials that can be returned to the environment without risk (such as biomaterials to replace plastics or other petroleum products). This is a trend we see accelerating in 2021, as capital markets get to grips with some of these challenges, and start to reap some of the rewards.
Another aspect of the next wave of innovation, which we believe will move higher up the agenda in 2021 is biodiversity. Carbon emissions are a relatively easy problem to tackle, and better understood, but biodiversity is not so easy to clearly define, measure or manage. Yet we know that the diversity of the natural world is closely entwined with our own society and economies. This evolved understanding of our own ecology will we think continue to develop, and addressing this challenge is something that capital markets are only just beginning to understand.
The US is back at the table
The election of Joe Biden as the next President of the United States brings the world’s largest economy back to the table when it comes to international efforts to address climate change. Returning the US to the Paris Agreement sends the message that Biden will take the environment seriously, after four years in which President Trump seemed at best uninterested, and at worst openly hostile, to the idea of tackling the threat of climate change.
Biden’s election victory has sent a clear signal to the world, and it is just one more example of the positive momentum that is now getting behind green investment themes, and we expect that momentum to accelerate into 2021 and beyond.
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 individuals mentioned 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.