2023 was a year where macroeconomic and geopolitical events overshadowed the long-term challenges facing the transition to a more sustainable world. Rising interest rates, persistent inflation and conflict in Ukraine and the Middle East converged to create a challenging investment environment for all asset classes.

In the Jupiter Global Sustainable Equities team, we believe it is important to look ahead and focus on the long-term. We believe it is not only possible for companies to align with sustainability outcomes, but that those who do are better placed to generate reliable returns over the long-term. We seek to invest in companies that are leading the transition, that are high-quality, and resilient across economic cycles. Our starting point is always economic sustainability, defined by strong balance sheets, resilient cash flow and durability of franchise.

Taking a long-term perspective means our priorities may differ from short term headlines. In our view, there are significant opportunities for long-term investors through investing in companies which are well positioned in three key areas: decarbonisation, natural capital management and social equity.
Climate change – the path to decarbonisation
Currently there is still much further to go to meet key climate-related targets, according to the UN Global Stocktake 2023 1. Leaders meeting at the COP 28 climate conference in Dubai are focussing on the next stage of measures that will need to be implemented to try to reach temperature goals. High on the list of priorities are discussions on the phase out of fossil fuels as well as implementing a Loss and Damage fund to support nations most impacted by climate change. Global collective response is imperative to reach a 1.5 degree climate scenario, as carbon emissions do not recognise borders.

Outside of the UN Conference of Parties on Climate Change we see regional political and regulatory frameworks increasingly developing to address legislated climate-related targets and prevent carbon leakage.

For example, we have been discussing the importance of global carbon pricing alignment for some time and mechanisms are now being introduced at meaningful levels and unprecedented speed. The Carbon Border Adjustment Mechanism (CBAM) enters into first reporting period for importers from 31 January 2024. CBAM will impact seven most carbon intensive sectors – including cement, iron and steel – and is designed to prevent carbon leakage across European borders. The US has responded to the global development of carbon pricing mechanisms with the PROVE IT (Provide Reliable Objective Verifiable Emissions Intensity Targets) Act in the US, which requires the Department of Energy (DOE) to study and compare the carbon emissions of carbon-intensive sectors. More recently China has announced a carbon footprint management system for 50 products by 2025, introducing national level accounting rules. Global and regional mechanisms such as these have the potential to support the competitive advantage of those company issuers that have decarbonised and therefore have less carbon to price through.

From an investment perspective, we believe the internalisation of externalities will require the market to better reflect climate related financial risk in the valuations of businesses. It is our view that those companies in our strategy, which are prepared for this internalisation of carbon costs will be better placed to deliver sustainable returns in the long-term.
Natural Capital
The Dasgupta Review – an independent, global assessment on the economic impacts of biodiversity – notes that over half of global GDP is reliant on natural capital 2. Addressing the rapid rate of biodiversity loss is vital for the economy and long-term conservation of our planet; the rhetoric around addressing the use of natural capital has accelerated in recent years, since our first article on the subject more than two years ago. An important step came from COP 15, the UN’s biodiversity conference in December 2022 where political leaders committed to more than 20 targets set out in the Global Biodiversity Framework.

While biodiversity considerations have formed part of our investment process since inception, recent regulatory and policy convergence is driving a greater opportunity to understand the complexity within our portfolio holdings. We anticipate that biodiversity impacts will increasingly become costs to business as the regulatory framework develops to penalise unsustainable use of impacts on natural capital.

The launch of the Taskforce for Nature Related Financial Disclosures (TNFD) at the end of September will serve as a major catalyst. We think this formalisation of reporting standards will become as important for biodiversity impacts as the Taskforce for Climate-Related Financial Disclosures (TCFD) has been for climate. This is a topic likely to form a cornerstone of the upcoming COP 16 Conference on Biodiversity to take place in October-November 2024. We are increasingly assessing the nature-related impacts of portfolio holdings and have identified three practicable areas of focus: deforestation, water use and plastic reduction. It is important to consider these impacts both in terms of operations but also through a company’s broader footprint.
Social Equity – Financial Inclusion
The world’s goal, set by the United Nations in September 2015, of eradicating extreme poverty by 2030 now looks frayed.

According to the United Nations’ Sustainable Development Goals Report 2023, we are leaving more than half the world behind. The report states that progress on more than 50% of targets of the SDGs is weak and insufficient and on 30% it has stalled or gone into reverse. 3

Additionally, a recent report by the World Bank outlines that COVID, ongoing conflict, rising food and energy prices, and natural disasters have caused the largest setback to poverty reduction since the Second World War 4. The UN SDG Progress Report indicates that by 2030, nearly 7% of the world’s population – about 575 million people – will still be in extreme poverty. 5

Given the challenge presented by extreme poverty, and the scale of its long-term consequences, we try to understand and research this systemic issue within our investment decision making. As investors, we can research and engage with companies to understand these considerations. Initiatives such as Living Wage commitments are useful indicators of corporate commitment and as a baseline, we consider the UN Global Compact framework human right principles.

At a product or service level, structural opportunities such as financial inclusion have been broadly recognised as critical in reducing poverty and achieving inclusive economic growth. Put simply, financial inclusion makes it easier, quicker, safer and more affordable to help the poorest in the world participate in the economy and raise their income levels. One positive to develop in a post pandemic economy is the acceleration of the adoption of digital solutions, making it easier for more people to access finance, delivering tangible social impact.

In all three areas – climate change, natural capital management, and social equity – the world has further to go to meet key targets. We continue to allocate capital, integrating long term systemic risks into our investment framework. Decarbonised businesses, which manage their use and impact on natural resources, and support social equity are in our view, an attractive long term investment opportunity, aligning our long-term savings with sustainable outcomes by seeking those companies leading the transition to a more sustainable world.

1 Global Stocktake | UNFCCC
2 The Economics of Biodiversity: The Dasgupta Review (publishing.service.gov.uk) – page 427
3 The-Sustainable-Development-Goals-Report-2023.pdf (un.org)

4 World Bank, Poverty and Shared Prosperity 2022: Correcting Course. Available at https://www.worldbank.org/en/publication/poverty-and-shared-prosperity

5 The-Sustainable-Development-Goals-Report-2023.pdf (un.org)

Link to GSE Biodiversity article: Biodiversity: Sustainable investing’s new frontier? – Jupiter Asset Management (jupiteram.com)


The value of active minds: independent thinking

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