The first half of 2020 was a unique time in the markets and in the global economy. While the economy as a whole is struggling to adapt and transition to new realities, those companies that were already pursuing solutions to systemic risks – including, but not limited to, pandemics – are growing and gaining market share.
Green Alpha’s investment thesis and portfolio construction processes are based on our model of a global economy that can thrive indefinitely, without succumbing to the various system-level risks confronting the world. So far this year, our unique thesis has resulted in our portfolios – across the board – providing both significant downside protection and upside capture.
Our thesis predicates that the Next EconomyTM will necessarily rest on four pillars, and our stock selection approach mandates that every holding is a leader in advancing one or more pillar(s).
Next EconomicsTM Pillars of Sustainability:
- Massive economic productivity gains. We recognize that to provide the global population with a good standard of living, without crossing planetary boundaries, or overtopping Earth’s carrying capacity, it is necessary for productive capacity to be far greater than it is today. In economic terms, that means the economy must generate more outputs per unit of input, be those inputs primary geological resources, money, or person hours. Increasing productivity gains can be found in areas such as: digitalization, automation, and communications networks.
- Renewable energies. The means of productivity gains cited in the first pillar must be entirely powered by true renewable energies. To achieve sustainability, it is necessary that these energies operate with low-to-zero input requirements. This means energies like wind and solar qualify, but biomass, biofuels, and natural gas do not. Green Alpha seeks investments like wind and solar-based utilities, and advanced wind turbine manufacturing.
- Waste-to-value supply chains. We need to appreciate the nearness and sensitivity of planetary boundaries, and therefore understand that extraction of primary geological resources must be reduced to some irreducible minimum, and eventually halted altogether. We seek companies delivering 100% recycled steel for industrial purposes, recycled textiles, and post-consumer derived, high-quality building materials.
- Equitable distribution of wealth. Economic and environmental sustainability will prove impossible under a system of great inequality, because a high degree of social cohesion is required to achieve realization of sustainability. Investments that seek to mitigate inequality include those that democratize access to banking and financial services, those with equitable healthcare solutions and pricing, and those providing broad-based access to accurate, reliable information.
As far as we can observe, employing this Next Economy framework makes us nearly unique among public equity managers, including impact-oriented managers and ESG practitioners. We hope this will change, and more managers will devise and implement similar methodologies, because where investment flows is where the economy happens; therefore where change happens. As long as investment managers prioritize things like index correlation above the necessary endgame of an indefinitely sustainable global economy, we will all continue, to some degree, to live in the business-as-usual economy, with all the destructiveness that entails. It is better, by far, to grow client assets via investing in our most innovative ways out of the climate crisis as they gain market share.
Nothing in this post should be construed to be individualized or personal investment advice.
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