BNP AM

The sustainable investor for a changing world

22 April 2020 sees the 50th anniversary of Earth Day, a global event to highlight support for environmental protection. Four years to the day from the signing of the Paris climate agreement, this year’s Earth Day has climate action as its theme.

  • Earth Day 2020 stresses the urgent need to take decisive action to meet the goals of the Paris accord given the still-mounting challenges of climate change
  • Current pandemic is a grim reminder of the cost of humanity’s sprawling environmental footprint
  • The transition towards a sustainable world presents both risks and opportunities for investors

The first Earth Day took place on 22 April 1970 in the US. It was a response to growing concerns around environmental issues such as oil spills, air and river pollution, and the impact of pesticides on human health. Twenty million Americans – 10% of the US population at the time – participated, creating unprecedented momentum for environmental legislation. This resulted in the US Clean Air, Clean Water and Endangered Species Acts and the creation of the Environmental Protection Agency (EPA) in December 1970.

In the years that followed, the initiative continued to grow, going global in 1990 with 200 million people in over 140 countries participating. Today, over one billion people are involved in Earth Day activities, according to the Earth Day Network.

 

COVID-19 pandemic: a grim reminder and a wake-up call for environmental action

While 2020 was set to reach new highs in terms of scale, the COVID-19 crisis has shifted Earth Day 2020 to 24 hours of global digital mobilisation and education around environmental issues.

The pandemic is a grim reminder that environmental issues need to be addressed urgently, as our growing footprint puts us ever closer to wild animals, making us more vulnerable to infectious diseases.  Indeed, no less than three-quarters of new and emerging infectious diseases originate in animals[1], making outbreaks increasingly common.

The first Earth Day boosted environmental awareness and legislation. Today, the challenges are tougher than ever and call for unprecedented action.

Since 1970, the world population has more than doubled to 7.8 billion people, putting increasing pressure on environmental systems. On average today, each person produces 21% more CO₂, uses 47% more fuel and consumes 65% more meat[2] than in 1970. Per capita plastic production increased by 447% to reach a staggering 4.9 tonnes in 2018[3]!

Exhibit 1:

Perhaps even more strikingly, since 1970, annual CO₂ emissions have more than doubled (see Exhibit 1), leading to a 1°C warming of Earth’s surface[4] and a multiplication of extreme weather events. At the current rate, the IPCC[5] estimates that we will exceed 1.5°C of global warming between 2030 and 2052.

To address these challenges, we need to cut greenhouse gas emissions as well as restore and protect natural capital. While the bad news is that there is no more time to delay action, the good news is that solutions not only exist, but also are increasingly being adopted. Since 2000, wind and solar power capacities have grown 32-fold and 400-fold respectively, reaching a combined output of over 1 000 GWh[6].

 

For investors, this represents both material risks and emerging investment opportunities

For investors, climate change represents a significant risk. Exceeding 2°C of global warming would have a significant impact on the value of investments across many sectors. Activities such as energy production and consumption, agriculture, transport, insurance and real estate face tighter regulation, higher costs, physical damage and changing consumer preferences.

To protect the current and future value of their investments, investors need to identify and ultimately reduce carbon risks in their portfolios. To do so, they can direct their investments towards sustainable funds, which explicitly and measurably take into account climate and other ESG[7] risks.

These challenges also represent a growing opportunity to invest in companies offering innovative, market-leading solutions in areas such as renewable energy and energy efficiency, water technology, sustainable food and agriculture, waste and resource recovery, and a circular economy.

The recent correction in financial markets may present an opportunity to (re)allocate a portion of investments towards these long-term themes, and hence both contribute to – and benefit from – the transition to the more sustainable economy that Earth Day 2020 is calling for.

Read more articles on sustainable investing.

Discover BNP Paribas Asset Management and read more about what sustainability means to us

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Related insights

Weekly investment update - What about forgetting about the Fed, just for a while?
Made in Marseille – The framework for a global biodiversity strategy?
Authors - Uncategorised
Click on pictures for more details
How can we decarbonise the steel sector?
BNPPAM

In the U.S., this material is for Institutional use only – not for public distribution. This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Reliance upon information in this material is at the sole risk and discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.

These documents and video clips may also include information obtained from affiliated investment management companies within BNP Paribas Asset Management, the brand name of the BNP Paribas group’s asset management services. The documents and video clips are produced for informational purposes only and do not constitute: 1. an offer to buy nor a solicitation to sell, nor shall they form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. Any opinions included in these documents and video clips constitute the judgment of the author/ presenter at the time specified and may be subject to change without notice.

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, and estimates of yields or returns. No representation is made that any performance presented will be achieved by any funds, or that every assumption made in achieving, calculating or presenting either the forward-looking information or any historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BNP PARIBAS ASSET MANAGEMENT USA, Inc. to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.

FOR INSTITUTIONAL AND FINANCIAL PROFESSIONAL INVESTOR USE ONLY. THIS MATERIAL IS NOT TO BE REPRODUCED OR DISTRIBUTED TO PERSONS OTHER THAN THE RECIPIENT.

BNP PARIBAS ASSET MANAGEMENT USA, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended. BNP PARIBAS ASSET MANAGEMENT USA, Inc. is a registered trademark of BNP Paribas or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. © 2021 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.