Throughout history, human ingenuity has prevailed in the face of numer- ous challenges. One recent example is the rapid development of the COVID-19 vaccine. Looking to the future, one of the biggest hurdles we face is what economists have called the “environmental credit crunch.” Our current standard of living and overall level of consumption are unsustainable in relation to our planet’s finite natural resources. As global citizens, consumers, and investors, we are stewards of the Earth. We have the power to shape a more sustainable path that will allow us to continue to evolve our quality of life while preserving our planet for the next generation. The “Future of Earth” rests with us.
Urgent action is needed to combat the growing climate crisis. From extreme weather to unsafe air quality, the environmental and human toll of climate change has become apparent. Nat- ural disasters caused an economic loss of USD 268 billion globally in 2020, according to Aon.1 In the US alone, 22 natu- ral disaster events took a financial toll of more than USD 1 bil- lion each, a new annual record and double the number re- corded in 2019.2
A coordinated effort between the public and private sectors will be critical to solving the challenges ahead. For investors, the transition to a more sustainable future presents both risks and opportunities. While climate change is a rising source of uncertainty in assessing asset values, more companies are en- deavoring to reduce their environmental footprint and be bet- ter positioned for the future. Those that are innovating to solve climate-related challenges will enjoy robust long-term growth prospects.
1 Aon Impact Forecasting, “Weather, Climate & Catastrophe Insight: 2020 Annual Report,” https://www.aon.com/global-weather-catastrophe-nat- ural-disasters-costs-climate-change-2020-annual-report/index.html
2 NOAA National Centers for Environmental Information 2021, “Billion-Dol- lar Weather and Climate Disasters,” https://www.ncdc.noaa.gov/billions/
Investment takeaways
A range of sustainable and thematic investment strategies can help investors integrate these corporate-level considerations into their portfolio. Thematic investments typically target com- panies with revenue exposure to unique or innovative products and services, while sustainable investment strategies consider company operations alongside a number of environmental, so- cial, and governance factors. Notably, thematic and sustain- able investments often overlap, and many strategies will con- sider both of these factors in their investment analysis.
This report has been prepared by UBS Financial Services Inc. (UBS FS), UBS Switzerland AG, UBS AG Hong Kong Branch, UBS AG Singapore Branch, and UBS AG London Branch. Please see the important disclaimer at the end of the document.
People, health, and communities Energy Land Water
| Air pollution is the fourth most common cause of death globally. It leads to respiratory and cardiovascu- lar disease and is linked to certain forms of cancer.Other effects of climate change on human health include extreme heat in larger cities and the poten- tial for wider spread of infec- tious disease by insects as temperatures rise.Climate change not only impacts human health and mortality; it also influences the sustainability of our communities. These adverse effects are disproportionately felt in parts of the emerging world, leading to displace- ment of low-income popula- tions, and, in the most extreme cases, have put some areas at risk of becom- ing uninhabitable. Beyond the human toll, there is a large economic cost associ- ated with these trends. | Energy-related emissions account for over two-thirds of global greenhouse gas emissions, highlighting the need to end our reliance on fossil fuels. A complete decarbonization and transi- tion to clean fuels is an enor- mous task. History has shown that scaling up sup- plies of any energy resource takes decades, and this is why it is important to begin the process now.The good news is that the pace of the transition appears brisk. We expect the market share for renewables to rise rapidly at the expense of coal and oil, the two larg- est energy sources. Still, fos- sil fuels may retain a major role for decades, given their widespread use.Scalable and affordable clean energy technologies in transportation fuels and for industrial use are under development, but many remain immature. For now, ensuring energy security requires a diversified, “all of the above” strategy to achieve a successful transi- tion to a clean energy future. | Sustainable land use is key to meeting climate targets. In its landmark Global Assess- ment Report on Biodiversity and Ecosystem Services, the UN estimates that 75% of the earth’s surface has been severely altered by human actions, while the IPCC esti- mates that about 21–37% of total emissions are attrib- utable to the food system.Tackling environmental issues and biodiversity loss is a huge and complex task. To reduce environmental harm and systemic risks, we need to rethink how we produce and consume the food we eat and the clothes we wear, their respective supply chains, and how we live. We need to enhance sustainable supply chains and trade.The good news is that inves- tors and governments alike are awakening to the risks involved in land mismanage- ment and the accelerating destruction of nature, as well as the opportunities to invest in conservation and land management solutions. | Water is abundant on a global scale. Seventy-one percent of the Earth is cov- ered by water; however, only 2.5% of the world’s water is freshwater, and of this, 69% is locked in gla- ciers or frozen ice caps.3 Despite this inflexible supply, demand is constantly grow- ing. Since the beginning of the 20th century, from 1900 to 2010, global water with- drawal increased 7.3 times, whereas the world popula- tion grew 4.4 times.4Long-term developments such as a growing popula- tion, rising living standards, industrialization in emerging markets, and a lack of infra- structure heavily affect water supply and demand. Climate change is another vital factor influencing the global water supply in terms of quality, quantity, and tim- ing. The UN estimates that2.2 billion people lack safely managed drinking water, and nearly 700 million could be displaced by 2030 due to water scarcity. |
Where to invest
| • Treatments for illnesses linked to climate change, including drugs and medi- cal devices• Urban planning solutions and smart cities technolo- gies• Companies that effec- tively address their employees’ working con- ditions and their exposure to physical climate risks | • Electric transport, fuel cells, batteries and alter- native fuels• Carbon capture and energy efficiency solutions• Companies that manage their carbon emissions effectively | • Land use monitoring and supply chain validation• Smart agriculture technol- ogies• Sustainable production and consumption prac- tices and solutions | • Smart water networks, water automation sys- tems and meters• Water testing and desali- nation equipment• Companies that effec- tively manage their water consumption in opera- tions and supply chains |
3 Igor A. Shiklomanov, “World Fresh Water Resources” chapter in “Water in Crisis: A Guide to the World’s Fresh Water Resources,” Peter H. Gleick (editor), Oxford University Press, New York, 1993
4 Food and Agriculture Organization of the United Nations, Water use.
Extracted from: http://www.fao.org/aquastat/en/overview/methodology/water-use/ in 2020
