The world is facing critical sustainability and social challenges that will require drastic change to overcome. Companies are working to address these issues and active engagement is key to gauging their long-term progress.
We believe that the ‘DED’ nexus: digitalisation, electrification and decarbonisation, is an incredibly powerful cross-sector and cross-industry trend that will define the investment opportunity and investment risk over the coming decade, with decarbonisation at its heart.
It is important to note that the transition to a low-carbon economy is much more complex than just removing fossil fuels from a portfolio and investing in renewable energy. Ultimately, after a couple of hundred years of fossil fuel-driven economic development, non-renewable energy is well and truly integrated into the global economy.
Decarbonisation is going to be enabled by two very powerful trends – electrification and digitalisation – and that these trends are key to decoupling fossil fuels from the current analogue economy. We believe that companies globally will need to make electrification and digitalisation core aspects of their businesses.
The technology sector and innovation are going to be huge drivers of electrification and digitalisation. We believe that we are in an age of exponential growth and exponential change with regards to technology. There are a number of technologies that are driving change, including artificial intelligence, blockchain, 5G, battery storage and electric vehicles.
Large strides, not small steps
The reality is that scientists are telling us that there are no more small steps to be made with regards to climate change. The Intergovernmental Panel on Climate Change’s sixth report, which assessed the scientific, technical and socio-economic information concerning climate change, noted that drastic changes are required, not just small steps.
Over the last couple of years, we have asked companies about their net zero carbon journeys. Encouragingly, we have seen that a lot of companies are rising to the challenge of net zero and are implementing science-based targets, as well as net zero carbon commitments.
There are no more small steps to be made with regards to climate change- Hamish Chamberlayne
Active management is key
The benefit of active management is that we can fully engage with company management on a deeper level to understand if they genuinely care about the long term, if they really have a culture of reinvesting in their business models, and if they focus on all their constituents, not just the shareholders but employees, suppliers, and the environment.
In today’s age of exponential change and growth, active managers are able to better understand which business models are more likely to last over the long term versus those that will not.
The pandemic has had a huge impact on our engagement agenda for 2021 but has not changed our key topics related to reporting, race and gender, and climate impact. What has changed is the imperative for companies to engage fully on these topics. Since the pandemic started, we have seen many more customers asking about COVID-19 responses and how companies have reported this.
We have seen improvements in company reporting, especially with regards to social factors and benefits that they give to their employees. Finally, we have also seen more customers asking specifically about racial equity and racial justice, which has been an engagement topic that has been brewing for a very long time but that only really came to a head during the pandemic.
The world is faced with some huge sustainability issues. Ultimately, we believe that companies that are on the right side of those sustainability issues, companies that are ultimately aligned with the development of a sustainable global economy, are going to be much more likely to see growth and demand for their goods and services.
Hamish Chamberlayne is Head of Global Sustainable Equity Team at Janus Henderson Investors.
This article is issued by Jesmond Mizzi Financial Advisors Ltd and prepared by Janus Henderson Global Investors. The contents of the article should not be construed as investment advice. Janus Henderson Investors is the name under which investment products and services are provided by Henderson Management S.A.