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Partner Content by International Business of Federated Hermes

Impact investing: a key role to play in reshaping the future

Today, the world is confronting the global coronavirus pandemic: so far, it has spread to 188 countries, infecting more than 18m people and killing more than 690,000, in turn putting a severe strain on health systems and economies worldwide. 

But amid this crisis, we have a chance to build a better future. For responsible investment strategies, Covid-19 has resulted in a paradigm shift: it has put a focus on the critical need to build resilience in healthcare, food and water security, and across supply chains. It has also put climate change and worker rights under the spotlight.

Impact investing is forward-looking: it aims to identify businesses and organisations pursuing purpose-led activities whose products and services tackle the pressing needs of the global economy and environment. Indeed, our thematic approach to impact investing seeks to identify opportunities created by megatrends – and as a result, we have been investing in pandemics long before the outbreak of Covid-19. 

Here we dive into the details of two megatrends, exploring their sub trends and how they are shaping our investment thinking. We also identify companies that can tackle these challenges and opportunities. 

Megatrend: climate change 

Climate change is the defining issue of our time: it threatens the lives and livelihoods of billions of people, natural disasters and extreme weather destroy crops and deplete fisheries, leaving people without income or food. Since 1998, extreme weather events have resulted in 16,000 deaths and economic losses of $142bn every year1. To respond to a changing climate, we must build resilience to these threats. 

Sustainable technologies can be particularly impactful when it comes to addressing the climate crisis. We see renewable energy, electric vehicles and energy efficient housing as some of the main pillars in the fight against climate change. We continue to see a huge opportunity in renewable energy across the globe. Production costs have fallen precipitously: renewable wind can now compete with fossil fuels on an un-subsidised basis. As such, we anticipate strong growth in the industry for many years to come.

Portfolio examples: Our exposure ranges from a renewables-focused utility to a wind turbine manufacturer. Ørsted is leading the way in renewable energy. As a global leader in wind technology and bioenergy, it is striving to build an entirely ‘green world’. Meanwhile, Kingspan, a recent portfolio addition, helps create energy efficient housing. The company is a global leader in insulation and its products not only reduce carbon emissions, but some of them are made from recyclable materials. We believe products like these, which can help reduce emissions from buildings, are critical to tackling the climate emergency as buildings account for about 40% of all global carbon emissions2. 

Megatrend: water 

For six consecutive years, water crises has been listed as a one of the World Economic Forum’s top five global risks3

One of our impact themes is water and it is aligned to SDG 6 (clean water and sanitation) and SDG 13 (climate action). We believe that improving access to quality water supply and preservation of the resource are critical to the environment. After all, water is essential for agriculture and food security, and it is the lifeblood of our ecosystems.