Please note: this article is more than one year old. The views of our CIO team may have changed since it was published, and the data on which it was based may have been revised.
At the beginning of each year, we re-evaluate our list of ‘Tomorrow’s Themes Today,’ the long-term strategic investment themes that will have the biggest impact on our world and your portfolio.
In 2017, we began our list with Cybersecurity and Millennials. In our 2018 Outlook Report, we extended it to include Healthcare, Infrastructure, Smart Mobility and Artificial Intelligence. And for 2019, we have made two new entries: Environmental, Social and Governance (ESG) Investing and Enhanced Infrastructure.
Environmental, Social and Governance (ESG) Investing
ESG investing has been in existence for some time – in fact, the first U.S. ethical fund dates back to 1928 and socially targeted investment goes back many centuries. But, starting from work done by Milton Moskowitz in 1998, there has been a growing realization that improving corporate governance procedures did not damage financial performance – on the contrary, it maximised productivity, ensured corporate efficiency and led to the sourcing and utilization of superior management talents.
Additional factors have also boosted the appeal of ESG. Growing levels of investor awareness and knowledge about financial markets have increased investors’ willingness to take an active approach to investment designed to further particular aims. In addition, institutional investors have become more concerned about sustainability in a way that mirrors the general shift in society and regulation will have encouraged this trend too.
At the same time, public opinion surveys keep showing a growing interest by younger generations – millennials being another of our themes – in environmentally and socially responsible investments, although it may take time to translate this interest into reality. It could take several decades for millennials to acquire the investible assets needed to give them a similar clout to the current ‘baby boomer’ generation, but we can already see some initial impact.
Our second long-term theme for 2019, Enhanced Infrastructure, builds on our earlier arguments about the need for infrastructure investment in many countries.
In the US, for example, construction spending has been below its historical average for the past six years. And we estimate it would need to increase from 2.5% to 3.5% of GDP by 2025 to close the spending gap. Meanwhile, in Europe and Asia the pace of new technology uptake is accelerating the need for system upgrades.
The number of electric cars on the road is expected to hit 125 million by 2030 globally, with Europe and China leading the way. That means investment is needed in power plants, grid networks and electrical charging points. Similarly, as mobile networks begin to roll out 5G as standard, countries must invest in their digital infrastructure to meet the demands of both business and consumers.
What we call Enhanced Infrastructure would include investments in large strategic projects, providing income flows for portfolios.
To find out more about our CIO Insights Annual Outlook report for 2019, Beyond The Peaks, and to download a free copy, please click here.