UBS says sustainable investment strategies will play a bigger role for years to come – and names 3 growing ESG themes that offer long-term value, including one that beat the market over the past year

  • Sustainable investing is on the rise and is showing no sign of halting anytime soon. 
  • Considering ESG factors can help investors navigate uncertainty and position for the long term.
  • UBS says clean energy, a food revolution, and water scarcity offer goodly investment opportunities. 
  • Visit the Business section of Insider for more stories.

Investors have become more interested in sustainable and socially responsible investing. 

And the numbers communicate just that. A Morningstar research report showed that 72% of the US population is at least somewhat interested in sustainable investing, a catch-all for environmental, social, and governance factors. 

The increased focus on sustainability from businesses, governments, and consumers was part of the reason why UBS made sustainable investing its preferred approach for global investing, according to an article from the bank’s chief investment office, which is led by Mark Haefele. 

Nations like China, Japan, and some in the European Union have vowed to be carbon neutral in just a couple of decades. Even consumers are jumping on the sustainability bandwagon: they too are starting to pay more attention to brands’ sustainability principles.

And the environment isn’t the only thing that stands to benefit from the growing trend. Consideration towards environmental, social, and governance factors in an investment strategy can help investors not only navigate through uncertainty, but also identify risks and opportunities to position themselves for the long term.

Further to that, investors might want to examine clean energy, today’s food revolution and water scarcity as these themes offer long term value, according to UBS. 

The bank noted that the clean energy area still provides long-term value even though renewable energy stocks have outperformed global equities this past year, resulting in high valuations.

Tesla shares, for example, saw their prices rise more than eightfold within a year. The electric-vehicle company’s stock went up 740% in 2020, crushing the S&P 500’s 16.26% gain and the MSCI All-Country World Index’s 16.8% rally. The same outperformance was seen in clean-energy focused ETF funds such as Invesco WilderHill Clean Energy ETF and SPDR S&P Kensho Clean Power ETF, which soared 60.1% and 57.7% respectively last year. 

The bank also wrote that given the introduction of technologies that make buildings more efficient, the clean-energy industry is poised to benefit from improvements in air quality and a broader focus on climate change. This can drive as much as a 10% growth in annual earnings over the next two decades for companies serving the “green agenda,” UBS said. 

The second theme Haefele’s team addressed relates to technologies behind products like 3D meat printers which are still young, but could further reshape the industry. 

“We also see upside in firms exposed to the food revolution, including the use of technology to improve farm efficiency to meat alternatives,” UBS wrote. That market is likely to increase fivefold, from its $135 billion value today to at least $700 billion in 2030, the bank added. 

The US Vegan Climate ETF is an ESG-focused fund that invests in companies who are socially responsible as well as animal and climate-friendly. The fund’s value spiked by about 67% in 2020. 

The third big opportunity on UBS’ radar is in water scarcity, due to rising demand and the need to replace old infrastructure. This should be good for water utility and industrial equipment service-providing names, according to the bank.  

Even ‘Big Short’ investor Michael Burry saw the commodity as an attractive place to put his cash to work. In 2015 he said he had been looking at water investments for around 15 years.  

Examples of funds that ride on the water theme include Invesco Water Resources ETF, which compiles names in the water industry that create conservation and purification products. 

Also, the Ecofin Global Water ESG fund invests in companies that are poised to benefit from efforts to correct the commodity’s supply and demand imbalance. 

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