Unlocking Thematic Investing ESG Opportunities

Thematic investing ESG is all about identifying areas of the market that are poised for growth due to changing societal needs and environmental concerns. This approach can help investors tap into the $22 trillion ESG investment market, which is expected to continue growing rapidly.

By focusing on ESG-themed investments, you can potentially avoid companies with poor environmental or social track records, and instead support businesses that are driving positive change. For example, companies that prioritize renewable energy or sustainable agriculture are likely to perform well in the long term.

Investors can also look to the United Nations' Sustainable Development Goals (SDGs) for guidance on ESG-themed investments. The SDGs provide a framework for identifying areas of the market that align with global priorities, such as reducing carbon emissions or promoting clean water access.

Megatrends are the starting point of all thematics, and they're avenues of growth for capturing thematic alpha. Megatrends are the major trends that define the world of today and shape that of tomorrow.

The world is changing rapidly, with technological innovations, demographic & social shifts, rapid urbanisation, climate challenges, and more. This complexity and interconnectedness create unprecedented digital innovations that disrupt value creation.

At CPRAM, they're attentive observers of the megatrends that are shaping the future, regarding them as investment opportunities. They see megatrends as sustainable development challenges, and it's their responsibility to offer solutions for managing the risks that they incur to societies and investments.

Megatrends include disruption, ageing of the population, education, food challenges, climate, and inequalities. These trends are often referred to as "long-term trends" and are the foundation for thematic investing.

Thematic investing is another way to buy shares or other investments that benefit from a certain trend. This trend doesn't necessarily have to be related to sustainability or social issues, but it can range from hydrogen and electric cars to remote working and meat alternatives.

Thematic investing involves higher risk, as investments are concentrated in one industry or sector, potentially leading to increased volatility. However, it can also provide a way to target high-conviction trends without going too broad.

Only 10% of the S&P 500's largest companies have remained in the top 20 over the last two decades. This highlights the importance of adapting to changing megatrends and investment themes.

81% of global ETF investors plan on increasing exposure to thematic ETFs. This trend suggests that many investors are seeking to capture the benefits of megatrends through thematic investing.

The world is changing rapidly, and with it, all of its ecosystems. Unprecedented digital innovations are disrupting value creation at a time when we are facing major human and climate challenges in building tomorrow's world.

Only 10% of the S&P 500’s largest companies have remained in the top 20 over the last two decades, making it essential to adapt to the changing landscape.

Companies and investors understand that making the global economy more sustainable and inclusive will be a priority in the next 10 years, but it won't be an easy route ahead. All stakeholders will need to collaborate to find appropriate ways to finance the transition in a manner that considers the complex interdependencies of many key environmental and social issues.

A single sector may no longer fully capture the complete value chain of a theme, as seen in clean energy and EV supply chains, which involve companies across 6 different sectors.

The world is moving towards reaching a ‘net zero’ and almost every country and company plan to reduce most of their carbon emissions, which will lead to a higher carbon price and increased costs for companies emitting large amounts of CO2.

ESG and Impact Investing are two key concepts in thematic investing that are often used interchangeably, but have important differences.

ESG, which stands for Environmental, Social, and Governance, refers to the criteria used to evaluate corporate behavior and screen potential investments. It supplements traditional financial analysis by identifying a company's ESG risks and opportunities, which can impact financial returns.

The ESG evaluation considers factors such as energy consumption, pollution, climate change, and waste production, as well as social factors like human rights, community engagement, and health and safety.

Impact investing, on the other hand, aims to produce a tangible social good, such as funding nonprofit research in clean energy. It's a subset of thematic investing that focuses on addressing social or environmental challenges.

Here are some key differences between ESG and impact investing:

While ESG investing is a key component of impact investing, not all impact investments are ESG investments. Impact investors may choose to invest in companies that have a positive social or environmental impact, even if they don't meet traditional ESG criteria.

As the demand for sustainable and responsible investing grows, it's essential to understand the differences between ESG and impact investing. By making informed investment decisions, we can help create a more sustainable and equitable future.

Thematic investing is a way to buy shares or other investments that benefit from a certain trend, which can range from hydrogen and electric cars to remote working and meat alternatives.

81% of global ETF investors plan on increasing exposure to thematic ETFs, according to a recent survey.

Thematic investing can involve higher risk, as investments are concentrated in one industry or sector, potentially leading to increased volatility.

Mega forces are key areas of change that financial professionals must focus on in the coming years, and two mega forces that are reaching critical inflection points are the transformative advancements in artificial intelligence and the growing importance of geopolitics.

Artificial intelligence has transcended buzzword status and is getting rapidly integrated in businesses across the economy, from healthcare to financials and more.

The opportunity today in AI lies less in the digital world and more in the physical infrastructure supporting this technology, such as semiconductors, data centers, and raw materials like copper.

Exposure to companies at the forefront of robotics and artificial intelligence innovation can be achieved through thematic ETFs.

Thematic investing offers an alternative to traditional strategies in identifying sources of growth and performance through underlying trends, with a view to offering clients long-term and transparent solutions.

Only 10% of the S&P 500's largest companies have remained in the top 20 over the last two decades, making it challenging to pick single stocks.

A single sector may no longer fully capture the complete value chain of a theme, such as clean energy and EV supply chains, which involve companies across 6 different sectors.

Mega forces like artificial intelligence and geopolitics are reshaping the global economy and impacting virtually all investors' portfolios.

The transition to a low-carbon economy is set to spur a massive reallocation of capital as energy systems are rewired, creating opportunities for thematic investing.

Sustainable investing is when you explicitly incorporate sustainability measures and metrics, such as ESG criteria, into your search for stocks to invest in.

Companies emitting large amounts of CO2 through their production of goods are likely to be affected by a higher carbon price, which can lead to decreasing profits and a lower share price.

The diversity of sustainable investing strategies is set to broaden, driven by demand from Millennial investors and new government incentives and regulations.

Sustainable investment opportunities are likely to branch out from public markets to other areas such as private equity, where investors may seek growth opportunities with sustainable brands.