Sustainable Investing Perspectives: Investing in Global Transitions
The desk interprets the latest UBS podcast focusing on sustainable investing as a notable shift towards the recognition of global transitions within the investment landscape. Per the full note , this aligns with growing investor interest in differentiated public equity exposures that prioritize environmental, social, and governance (ESG) factors. There is an increasing urgency amongst investors to integrate sustainability into market strategies, especially with influential voices like Melissa Ambler from UBS and Martin Groskopf from AGF highlighting the importance of this transition. This indicates that market players should pay attention to how these themes might impact investment flows and currency movements, particularly in sectors sensitive to ESG criteria.
What the desk is arguing
The desk posits that sustainable investing is becoming a cornerstone of investment strategy, as highlighted in the September episode of UBS's Sustainable Investing Perspectives podcast. With experts from UBS and AGF discussing the thematic approaches to navigating global transitions, it underscores the increasing importance of ESG principles in shaping investment decisions.
Investor momentum towards sustainable investments reinforces the notion that shifts in asset allocation are forthcoming, especially in public equity markets. Market participants are urged to adapt to these new norms, as the dialogue around sustainability not only influences public perceptions but also dictates the evolving risk and opportunity landscape.
Where it sits in our coverage
As our internal research lacks specific targets or forecasts in major currency pairs currently, we are unable to provide a detailed consensus on price levels or firm comparisons.
How other firms see it
Given the absence of internal coverage data, there are no aligned or contrary firms to comment on in relation to this sustainable investing theme.
What the calendar says
No events are scheduled in the next month that would directly impact or connect to this theme of sustainable investing and global transitions.
01Sustainable investing is increasingly seen as essential to strategic asset allocation.
02The focus on ESG factors is influencing market dynamics.
03Investor sentiment is shifting towards themes that incorporate sustainability.
04The ongoing dialogue among experts reflects a growing urgency in the investment community.
Market implications
Market participants should closely monitor how the rising emphasis on sustainability is likely to impact sectors such as renewable energy and ESG-compliant corporates. Additionally, the push for green finance initiatives may align with broader economic policies, influencing currency movements especially in environments sensitive to ESG considerations.
Risks to this view
A potential risk factor that could invalidate this call includes a political backlash against sustainability initiatives, which could lead to decreased investor confidence in ESG investments. Additionally, any extreme market downturn that prioritizes short-term gains over sustainable strategies may undermine the current focus on long-term sustainable transitions.
ubs
We are back now with the next installment of our Sustainable Investing Perspectives podcast here on the UBS Market Moves podcast channel. The focus for the September episode is investing in global transitions. I am joined in studio today by Melissa Ambler, Senior Sustainable and Impact Investing Platform Specialist from within UBS Global Wealth Management.
We are excited to welcome back to the series from our partners at AGF Investments, Martin Groskopf. Martin manages AGF Investments' sustainable investing strategies and provides input on sustainability and environmental, social and governance issues across the firm's investment themes. Martin is a thought leader and a frequent public speaker on ESG and green finance issues and Martin has more than 30 years of experience in financial and environmental analysis.
So with that, Melissa, Martin, thank you both for dropping by, spending some time today with our listeners and their clients of UBS. Melissa, let me now turn it over to you to lead today's conversation with Martin. Great.
Thank you, Dan. So Martin, one reason why we were interested in having this conversation today with you is because in today's market environment, in the midst of various transitions globally, we're seeing heightened interest in differentiated public equity exposure and in many ways, that's been your focus at AGF, right? So talk to us about how you think about the investment universe thematically as a start and really would love to understand the origins of the framework that you're deploying to make sense of the market.
Sure. Thanks for the question, Melissa, and thanks for having me on today. I mean, this strategy, the approach that we use at AGF has really been in place for over 25 years and it comes really from some work that was done by the UN in the late 80s, resulted in a report called the Brundtland Commission Report, which sort of defined the term sustainable development and the basic premise of that was focusing on the key inputs that are needed for society to thrive and for us that, at least in the public markets, became focused on water, waste, energy and health.
So those have been sort of the four thematic areas of focus for the approach that we apply at AGF and really we think it's a very long-term view that we're taking on how these issues will evolve over time, how the markets will value key inputs for society and really to keep that long-term focus for investors and provide a differentiation really from many other strategies that are available in the industry today. That's a really helpful setup here because you mentioned energy, so maybe we can start there. Thinking about the energy transition theme right now specifically, right, this is a very large opportunity set, whether we think about electrification and digitalization, geopolitics right now especially.
What are you most focused on in terms of opportunities in the market, particularly with respect to this intersection between AI, data center build-out, which is really what is front and center right now in capital markets, would just love to hear more about I think the genesis, right, of how you're thinking about energy and the energy transition in the context of the approach that you just laid out. Sure. Well, for us, energy transition has been an area of focus for quite some time, so really before the whole AI data center issue emerged, it's really only been a topic for the markets over the last two and a half years or so.
And the approach that we've taken has been, as I mentioned, longer term. Our view has been that energy markets globally were transitioning to lower carbon sources and one can take the green view of it, obviously with geopolitics what they are today, perhaps that's not as in vogue as it was two or three years ago, but the dynamics for us are quite the same, whether the demand is coming specifically from society or from commerce around AI and data centers. The dynamics are that renewable power, for instance, is cheaper all the time, every year it gets cheaper to deliver, it can be put in place faster than conventional thermal energy.
So the transition itself has very strong economic drivers regardless of policy implications. And I think now that we have an intersection with an incredibly intense new demand source, the data center build out, these dynamics are only becoming more obvious. If you want to build out, for instance, nat gas, you have to get in line to get a gas turbine, you'll be probably getting that delivered in six or seven years, you'll have to get a gas interconnect, where there's increasing pressure on not delivering those interconnects for a variety of reasons, versus, for instance, solar with battery backup, or fuel cell technology which can get delivered relatively quickly, it's cleaner, approvals are faster.
So that's a key element for us, is the supply of cleaner energy, but also so many aspects of energy efficiency as well that go into building better infrastructure in our communities, as well as more effective use of water, because water is becoming a major concern. And then one aspect that I think is under-followed, or maybe under-represented, I guess, in the landscape is noise pollution. This is something that communities increasingly are concerned about, as large infrastructures place next to homes.
And so there are companies that help alleviate those concerns, that make things quieter, essentially, in terms of the equipment that's put in place. So that, again, is an interesting angle, and these are all things that we're quite excited about for long-term investment opportunities. So I would love to lift the hood on that just a little bit more, staying with this theme of AI and its role in your investment universe right now.
How are you thinking about this value chain, particularly from the lens of what is also going to deliver on environmental and societal aims, right? Like you mentioned, water usage, noise and air pollution, cost. There's also, of course, huge concern, particularly leading up to the U.S. midterm elections.
This is vibrant within the discourse, you know, what rate-payer impact will be, and the long-term impact on utility and energy prices. And so I would love to hear you pick apart the value chain, if you will, from an energy transition perspective, and what that looks like to you on the ground in terms of opportunities, but also risks in the system that you really don't want to be gaining exposure to right now. And then if you could also speak to, you know, what you see in the market that is relatively more detached from the AI theme that could also be presenting an interesting opportunity.
Would love to hear a little bit more under the hood, if you will, on how you're thinking about the opportunity set. Absolutely. So, I mean, as you're quite aware, and most investors are aware, the AI supply chain has been driving most of the returns in the market of late, and that is likely to continue.
It'll be either sort of, you know, the AI data center-related trade or the opposite, right? I mean, people will position favorably when it's working, and when they think there's a little hiccup, will position or rotate into other areas of the market. But certainly, you know, a lot of what we're interested in does play directly into that supply chain.
So, if you think of any new facility, I mean, data centers are just one example, but you start with permitting, right? So, we would look for companies that help to get those permits, and those are increasingly problematic to get. So, it becomes more complex.
There's more community engagement that's needed. There's more mitigation that's needed when you're putting the project in place to meet the needs of the local community. And so, there's, you know, companies that specialize in that expertise, doing those consultations, working with government, getting the permits in the first place, and designing the project in a manner, then, that reflects some of the compromises.
And there will be lots of compromises. What we know today is that around 40 to 50 percent of the expected data center construction build-out this year has been delayed already due to permitting or due to state-level moratoriums, you know, pauses in development. So, it's already happening that, you know, the hyperscalers and others who are the proponents are running into opposition.
They then need to change the dynamics of how they're going to put that project in place. And so, that starts, you know, with those permits, but then you get into grid interconnect issues. You mentioned power prices, and most data centers are not going to sit off-grid, right?
They may be behind the meter, as some of them are called, but they will have some connection to the grid. And so, there is a dynamic there of getting that grid connection, what that means, you know, for the overall system, the grid itself, in terms of resilience, in terms of pricing, of course, which is what consumers feel. And so, you know, that's incredibly important to get that social license to operate, to put that facility in place in their community.
And so, all of that grid interconnect is interesting to us, because it also plays to resiliency, right? We have more heavy weather events. We have more intermittent power entering the grid from renewables.
And so, you need to have a grid that's more resilient. So, we, for instance, are very interested in companies that help the grid become more resilient. That can be transmission lines, it can be contractors that are working on interconnects.
So, that's a very robust area. And then, you get into the actual equipment that goes into these facilities. It can be everything from, you know, sitting on the rack technologies that would allow energy to be deployed more effectively in the data center.
So, there's companies that help to do that. It can be in the type of equipment that's used to power the data center, whether it is battery solar, whether it is gas turbines, what's the emission equipment that's put on those turbines. How do you deal with the noise, then, if you're using the thermal technology like that?
So, it's just such a, you know, robust opportunity just in that one supply chain. And I think you mentioned the value chain. That's how we do think of it.
We think of it from, you know, what's the product that's going in place or what's the infrastructure that's going in place, and then working it back all the way to, you know, what are the materials that need to go into that to make it happen? And that's how we look at most of these sustainability issues. Yeah.
And I just want to go back to something you just said that I think is really important and worth putting a pin in, which is the social license to operate. It goes to this notion that sustainability considerations, environmental factors, societal factors, in the case of evaluating the hyperscalers and the total AI value chain, you know, it's no longer really a nice to have. It's really a must to have in terms of assessing the promise.
And you mentioned the delays that are already are coming to materialize in the market with respect to some of this opposition, right? And so it really is, I think, an important point that these considerations are really coming to the fore when it comes to the AI value chain and thinking about, you know, the financial risks and, you know, opportunities short and long term. So I'm really glad you mentioned that.
So let's perhaps from here change gears to perhaps another global transition, if you will, that, you know, just continues to unfold, I think, in various ways. And I think sometimes this topic flies under the radar, especially now given the attention that's being put towards the energy transition, though rightfully so. But there is a lot that's happening under the surface, I think, and you mentioned it at the top with health.
And one of the themes that I know the firm focuses on quite intentionally is food and health together. So I would love for you to talk about the value you see in this space from both the financial and sustainability standpoint. Sure.
Well, for us, the link between, you know, the environment, ecology, and human health is very direct. I mean, I think some might view it as indirect, but, you know, you have a healthy environment, you have a healthy food system, you have healthier people, and there's a very strong interaction there. And I think that was one of the areas really that the Brundtland Commission report way back when was stressing, and we lose sight of that.
And so for us, you know, food and health is how many people will interact with ecology, whether they know it or not. So we are interested in companies that, for instance, you know, make healthier products for people to be food. But it's also products that help people get out and enjoy the outdoors and become healthier through that.
I think that interaction is very important. I think with the extreme heat events that we've been feeling this summer, especially in Europe, you know, that's becoming very obvious to people now, and that is an important link for them to understand that we need to make different choices if we want to continue to enjoy some of the things that we expect to enjoy, even in our retirement. So I think, you know, that linkage is really important to stress, and there's companies that help people get active, you know, it can be equipment to get them outside.
You know, bikes are a great example, but, you know, digital tools that help them track their events when they're outside, it can be clothing that helps them get into the mountains or get into lakes and enjoy those. So, you know, there's the consumer discretionary aspect of it, and then there's health itself, which is, you know, in many cases, we're looking at preventative options, like really, you're more active, you're healthier in the first place, but obviously dealing with disease as well. So, you know, that health component of just solutions for people's health concerns is important as well.
It can be, you know, I think the last case for us is sort of the pharma approach, and it has its place if needed. Ideally, you know, you're dealing with it before you actually need to get a prescription, but it could be that sort of thing. It can be, you know, less invasive surgery, it can be scans that are using, you know, AI now for more effective, you know, cancer screening and that sort of thing.
So, there's just a wealth of opportunities within that food and health area. One thing that I didn't stress initially, I should have, is things like irrigation. You know, when we're looking at that food supply chain, drought conditions are now prevalent on a more secular basis, they used to be more cyclical.
And so, you know, we are interested in companies that provide irrigation and precision ag type equipment that could help us improve yield even in, you know, higher drought or severe weather conditions. No, I really appreciate you connecting those very important dots, particularly from an ecology perspective to health. And I'm also just curious, you know, with the rise of GLP-1s, has that influenced as well how you are approaching the space?
Yeah, I think, you know, we were probably a bit slow in terms of reacting to it from the pharmaceutical industry. I mean, for us, you know, we were very focused on the active living side and sort of improving health outcomes in that way, it's more preventative. So, you know, they definitely have their place in helping people, you know, deal with what is a scourge really worldwide in terms of obesity.
And we know that it's systemic in some cases. So Martin, I'm going to leave it there with my questions. But is there anything else we didn't cover you think that's on your mind?
Well, I think, you know, investors are very concerned about sort of trade politics, geopolitics generally right now. And, you know, it definitely does affect the market generally, you know, confidence levels obviously declined to some extent when you see this level of trade war and physical war going on worldwide. You know, I just think that I've been actually pleasantly surprised at how resilient the market's been, despite all of sort of these headwinds we're facing.
I think that's actually a positive sign that markets are acting fairly well and people are continuing to invest. And in some cases, in longer term stories, you know, and in the sustainability space as well. You know, I would just say for investors, keep the chin up because, you know, there's a lot going on, but markets are indicating that we are getting through this period.
I think so. Martin, thank you so much for your time. Really appreciate it.
Thank you. Thank you for tuning in. Be sure to visit UBS.com slash studios to view the entire UBS studios suite of podcast channels along with our video offerings, such as UBS trending.
You can also follow us on Instagram for content highlights at UBS trending UBS studios is part of the UBS chief investment office within UBS global wealth management. Visit UBS.com slash CIO to view the latest research. UBS chief investment offices, investment views are prepared and published by the global wealth management business of UBS AG or its affiliates.
The views and opinions expressed in this material by external guest speakers are those of the author speaker and are not those of UBS, its subsidiaries or affiliates. Accordingly, UBS does not accept any liability over the content of this material or any claims losses or damages arising from the use or reliance of all or any part thereof. This material has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient and is published for informational purposes only.
For a legal disclaimer applicable to the independent investment views produced by UBS, please visit our website at UBS.com forward slash CIO dash disclaimer.