Whatever people’s views are on the current state of capitalism, it is hard to deny that this system has created a huge amount of economic growth, and this has brought major benefits through the creation of jobs and wealth for many, pulling people out of poverty, improving education and healthcare, and reducing mortality rates.
But this growth has come at the considerable cost of:
► Inequality: the gap between the haves and have nots in society is vast and continues to widen, and this disparity is not only deeply unfair but also a big risk to the stability of society.
► Trashing our collective environment: our economic activities are having an unprecedented negative impact on the flora and fauna that share our planet, so much so that it is undermining the natural regulatory systems that sustain our quality of life.
We cannot continue developing without tackling these two shortcomings of our economic system, and any vision for the future must include creative ways to solve them quickly. Climate change is one symptom of unsustainable development. The good news is that, at long last, it appears this is being widely acknowledged as a risk we have to address.
The ramifications of consumer preferences and the raft of future regulations required to combat climate change (current regulation simply will not get us there) are huge and will have a material impact on the success or otherwise of businesses. The scale and persistence of this trend is underestimated by the market, and we believe analysing it can give us useful insights into the future and provide an information advantage.
This issue cannot be seen only from an “environmental” silo; it has to include the social dimension in retraining people and providing sustainable livelihoods as a result of efforts to combat climate change. In the Paris Accord – the international agreement for action to combat climate change – it refers to the “just transition”, which highlights the need to include society in this move away from carbon. Ignoring this increases the chances of us failing to meet this huge challenge.
While it is easy to be scared by the scale of the climate change challenge, tackling this has exciting investment opportunities. These come through businesses discovering and creating smarter ways of providing goods and services, as well as improving jobs and opportunities for the many who feel the benefits of capitalism and globalisation have passed them by.
There is also a role for investors in encouraging and supporting this change, both in their dialogue with businesses and in a smarter allocation of capital to more sustainable companies.
But climate change is far from the only consequence of our current economic system and its inherently unsustainable trajectory. We often see people become obsessed with single issues and while we welcome this overall drive, it is important to realise there are trade-offs and we cannot ignore the other challenges we face.
This is not to diminish the importance of climate change – we have to act on it and fast. But the key is to make people understand that sustainable development is about much more than low carbon energy, despite it being a vital ingredient, and this manifests itself in many ways across the economy and affects huge swathes of the population.
Therefore, we must all be careful of wearing “climate change goggles”. There are many ways in which our consumption fuels unsustainable exploitation of resources, and the by-products of this behaviour further compound the strain on the natural systems on which we rely.
We need to tackle our seemingly insatiable appetite for cheap, quickly made clothes, the industrialised agricultural system, our increasingly unhealthy lifestyles and what happens when we throw things away.
For a comprehensive list of common financial words and terms, see our glossary here.
Find out more about Liontrust Sustainable Investment and the key trends that will shape the global economy of the future here.
Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. The majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds invest in emerging markets which may involve a higher element of risk due to less well-regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and has a concentrated portfolio of securities, there is an increased risk of volatility which may result in frequent rises and falls in the Fund’s share price. Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities – fluctuations in interest rates are likely to affect the value of these financial instruments. If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.
The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.