12. Sustainable Thematic Investments Dr. Marc-Olivier Buffle
Senior Client Portfolio Manager, Pictet
Thematic investing is an investment approach that focuses on specific economic activities that are identified because of their potential for sustaining superior long-term growth.1 When these activities are of a sustainable nature, the theme can be characterised as sustainable and the approach as sustainable thematic investing. For a company to qualify as a sustainable thematic investment candidate, it must possess two qualities. First, a sustainable company should “do the right thing.” Its core business should focus on the development of products and services that directly seek to alleviate the strains on the world’s natural resources or help overcome societal challenges. It is this quality in particular that can be accessed through sustainable investment themes with specific environmental or societal focus. Second, a sustainable company should “do things right.” In other words, it should actively seek to improve its environmental and societal impact across its operations and beyond—from the way it sources raw materials to how it recycles its products once they become obsolete.
What Is Meant by Thematic Investing By focusing on themes, asset managers aim to identify segments of the economy that display superior long-term growth. One approach to identify themes is by analysis of secular trends. Long-term changes affecting society and the environment are determined, and those segments of the economy that benefit from such changes are identified. This then leads to the discovery of groups of companies that should experience long-term growth superior to that of the global economy. Thematic investing is a long-term investment approach: economic cycles might affect returns in the short term, but thematic investors should experience returns superior to those of the market over periods spanning multiple cycles. As an example, companies developing water-related products and services are supported by the secular trends of urbanisation, growth of the middle class in emerging markets, aging infrastructure in developed markets, climate-change-induced water scarcity, ubiquitous water pollution, and an 90
