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May 26, 2021 | GSAM Connect

Megatrends: Driving Environmental Change

We are facing a climate emergency. Depending on where you live, you may have already seen it begin to manifest through pollution, wildfires, hurricanes or floods. If all were to remain equal, the prognosis would be devastating. Fortunately, the world is waking up to this fact and we believe we are on the cusp of a sustainability revolution which will help the planet change course.

We see three drivers that each have a critical role to play. If they do, we believe the sustainability revolution will have the impact of the industrial revolution at the speed of the digital revolution.

  1. Governments. Around the world, certain governments are using the climate transition to stimulate their respective economies, to create jobs, and also to develop valuable technologies to assist with the green recovery. We have seen it in Europe with the EU Green Deal, and the goal of making the continent carbon neutral by 2050. We have also seen it in China, the biggest pollutant in the world, and their aspirations for carbon neutrality by 2060.  Importantly, we’ve also witnessed a shift in the US, with the new administration rejoining the Paris Agreement and we expect to see further policies announced in the near-term. Government policy is a critical driver, as governments have the ability to tax, regulate, incentivise, and direct investment in the private sector to certain activities which support the fight against climate change.

  2. Corporates. Globally, companies are under pressure from their shareholders, employees and consumers to engage ethically from an ESG perspective. We believe those that are not, will need to change fast. The tech sector is a good example of one area leading the charge - many of the Big Tech names already use renewables for powering their servers. Companies will be key in driving innovation and creating new products and services to help deliver positive environmental change.

  3. Consumers. We believe this is the greatest catalyst for change among the three drivers we’ve outlined. People are becoming a lot more aware of their carbon footprint and they want to act to reduce it. Take the plant-based protein sector as an example, and the exponential growth it has experienced over the last few years. People have realised the negative impact the agricultural sector has on the environment, particularly from an emissions perspective, and they want to play their part in combatting this. Critically, changing consumer preferences also tie into our first driver: governments are acting because the preferences of consumers, of voters, are shifting.

In our role as active managers, we see particular opportunities in companies driving innovation across clean energy, resource efficiency, sustainable consumption, the circular economy and water sustainability. We believe that the shared ambition of governments, corporates and consumers mean that companies exposed to these themes provide a compelling long-term investment opportunity.

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Luke Barrs

Luke Barrs

Head of Client Portfolio Management, Fundamental Equity, EMEA, Goldman Sachs Asset Management

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