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October 2018

Global Challenges and Investment Themes

Dear Reader,

The summer of 2018 has brought an unprecedented heatwave to the Northern hemisphere. Forest fires have raged from Sweden down to Greece, claiming the lives of many victims. Central Europe and the UK were gripped by a severe drought lasting several months that caused massive crop failures. As a consequence of the accumulated heat, heavy downpours caused flooding and transport chaos for a while. Meteorologists say that the past summer has shown a highly unusual weather pattern which they think is linked to man-made climate change.
While the harbingers of a dramatic climate change are giving clear signs, the political reactions are absent. America’s unilateral declaration of a trade war brings back to life ageing and inefficient coal power stations in the USA. Germany is not progressing with the planned exit from coal. Subsidies for energy in many Emerging Markets are sustaining a rise in the use of fossil fuels. The following graph depicts the world map, representing the area of a country in proportion to its carbon dioxide emissions. The picture shows that emissions are currently primarily a problem for industrialised countries, but that the catchup process of emerging countries, especially China, will massively exacerbate the problem in the next decade.

Carbon dioxide emissions 2015
In October 2018 the Intergovernmental Panel on Climate Change (IPCC) will release a special report in preparation for December’s climate conference COP24 in the Polish city of Katowice. It is high time that the international committee of experts warns politicians that achieving the set goal of limiting global warming to 1.5 degrees Celsius compared to pre-industrial levels is now virtually impossible.
Many recent studies have indeed concluded that achieving the Paris goal requires a net depletion of carbon dioxide from 2070 onwards, with a gross withdrawal of carbon dioxide starting already in 2030 on a massive scale. The longer politicians procrastinate, the more CO2 will need to be removed from the atmosphere later on.
Sustainable investments aim to identify the risks associated with global challenges and the measures necessary to redirect economic activity. We calculate the carbon footprint of each portfolio and its exposure to fossil fuels in order to be able to draw conclusions for portfolio construction and risk management.
But more importantly, global challenges also offer great opportunities for investors. One very promising theme is the need to provide clean water for industry and households and to use it more efficiently. A second theme is the technological revolution that is necessary to master the energy and transport transitions. A third theme is the necessitiy to meet the needs of Asia's rising middle classes in a sustainable way. A fourth theme is the re-orientation of global production and services towards the rapid ageing of our society. All these trends will bring significant growth to the companies positioning themselves in these fields. The main topic of this quarterly newsletter is sustainable thematic investing, with which investors can achieve positive performance from long-term trends and, at the same time, develop their impact. Let us inspire you!