Sustainable investing’s evolution has accelerated rapidly over the past decade. What was once seen as a niche is now front and center for many investors. The growing interest in sustainable investing is based on ever greater awareness of its potential benefits. These include a diverse set of investment opportunities with potential for outperformance and management of certain risks that financial analysis may overlook.

Alongside the potential investment benefits, there is increasing awareness of the role of private capital in helping to address some of the challenges in the world around us. With this realization, it is evident that sustainability considerations can be implemented holistically for client portfolios.

The challenges and opportunities of sustainability

The United Nations’ Intergovernmental Panel on Climate Change’s (IPCC) latest report¹³ leaves no doubt that the planet is warming and that humans are responsible. A total transformation of the world’s energy system is required to reduce the concentration of CO2 in the atmosphere and help avert a climate catastrophe – see Greening the world.

Shifting to clean methods of energy production demands innovation and massive capital investment. According to a Citi GPS report, some $122tn of investment may be necessary. This is made up of electrification and renewables ($94.6tn), efficiency and circularity ($12.1tn) and alternative technologies ($15.0tn).¹⁴

Biodiversity loss – the reduction in the number of plant and animal species – is also a critical challenge for humanity. We have lost 76% of freshwater wildlife, 39% of terrestrial wildlife and 39% of marine wildlife since 1970.¹⁵ Biological diversity plays a vital – but often overlooked – role in human health, food security, business operations, supply chains and economic growth. Still, the risk that biodiversity loss poses is gaining recognition, as are the related opportunities for innovation. For example, seeking nature-positive solutions may create $10 trillion in business opportunities and 395 million new jobs by 2030.¹⁶

Meanwhile, widening inequality raises many concerns about fundamental fairness, social cohesion and faith in public institutions. Increasingly, though, it is also seen as a core issue for macroeconomic performance. Addressing inequalities could enhance growth, which ultimately serves everyone. Improved education systems, better access to affordable healthcare and meeting other basic needs all boost long-term prosperity and economic growth.¹⁷