Top sustainability themes to watch

The world is facing a complex and varied set of sustainability challenges. 

Six of the Earth’s nine planetary boundaries, which are essential to the stability and resilience of the Earth system have been crossed.¹ Apart from increasing risks of extreme weather events and biodiversity loss, this could also lead to natural resource shortages and ecosystem collapse. In turn, this will impact both livelihoods and economies at a significant scale.

Recent geo-political issues have highlighted how conflicts and supply chain disruptions lead to strains in food, water, and energy security.² Not only do these issues interfere with cooperative environmental actions but they also further widen social gaps, which in turn lowers the quality of life for people.

Sustainable thematic investments aim to invest in companies that derive their revenue from creating solutions to address these sociopolitical, environmental, and equitability-related problems.  

The themes are often inspired by the 17 United Nations Sustainable Development Goals (UN SDGs), a roadmap for investors on where capital is required from clean energy, sustainable food production to affordable housing. 

Investing in sustainable thematic strategies gives investors the potential to align their investments with their worldviews and capitalize on innovations that drive both sustainable development and financial returns. 

Below are Citi Wealth’s core sustainable investment pillars that show growth potential to drive shared prosperity for the planet and people: Greening the World, Preserving Natural Capital, Improving Quality of Life and Fostering Fair and Inclusive Growth. 

The environmental factor in sustainable investing reflects both the dependency and impact of companies’ operations and human activities on the natural environment. The costs of climate inaction, biodiversity loss and deteriorating ocean health are too high to ignore. 

Greening the world is an unstoppable trend given its momentum and importance to the addressing increasing demand for energy globally.  It requires transformative solutions spanning energy transition, decarbonization to climate mitigation and adaptation to build resilient infrastructure that lasts for generations to come. 

The global energy transition is moving rapidly despite market volatility and tumultuous supply chain logistics. In 2023, investments in clean energy, power infrastructure, and energy efficiency investments hit $1.77 trillion combined, surpassing fossil fuels.³

We expect that this growth will continue to be driven by regulatory support, such as The US Inflation Reduction Act, EU’s Green Deal and REPowerEU along with enhancement in cost competitiveness and technological advancement. 

The multi-dimensional aspects of the energy transition are generating investable innovations that span both the supply and demand side. Apart from clean energy generation assets, opportunities can be found in energy storage and transmission; electrification and battery technology; decarbonization and energy efficiency innovations in diverse sectors especially in hard-to-abate ones such as transport, cement and steel.  

Beyond the energy transition, the shift towards sustainability practices that reduce environmental impacts are also gaining traction due to increasing regulatory requirements and stakeholder demand. This creates business opportunities for products and services that improve resource efficiency, waste management, sustainable buildings and the circular economy. 

2023 was the hottest year on record and extreme weather events have been identified as the top global risk by severity over the next ten years.⁴ While a lot of capital has gone into climate mitigation, opportunities in climate adaptation are emerging fast.  Organizations are stepping up to improve their resilience to the physical climate impact from rising sea levels, extreme weather variability, heat, drought, storms to wildfires. 

Natural capital refers to natural assets including soils, species and landscapes that provide valuable goods and services to society such as carbon sequestration, habitats, pollination, food and raw materials.⁵

All life on Earth, along with human and business activities, are sustained by our natural ecosystems and biodiversity. It is estimated that $58 trillion, more than half of the world’s gross domestic product (GDP) is moderately or highly dependent on nature.⁶

Natural capital can deliver over one-third of the climate change mitigation needed to achieve the global climate targets by 2030.⁷

However, nature’s value is unpriced and even negatively priced through some environmentally harmful subsidies. This has caused excessive use of natural assets, leading to massive land degradation and biodiversity loss together with the combined effect of climate change. 

Leaders are now calling for more nature-positive policies and investments to address the twin crises of climate change and biodiversity loss. Opportunities in this field can potentially generate more than $10 trillion new annual business value and create 395 million jobs by 2030.⁸

Nature-positive solutions contribute to protecting or restoring natural ecosystems and assets as well as improving practices to reduce or mitigate the negative impact on nature. These solutions span multiple areas from the food, water and climate change nexus; land and ocean-based solutions to transforming business practices. 

Areas for investors to watch include ecosystem conservation and restoration; circular and resource efficient businesses; regenerative agriculture; sustainable land and water use, the blue economy as well as pollution prevention and reduction. 

Sustaining economic growth and social harmony are critical for prosperity and to fight against environmental crises on top of climate and nature-positive solutions. It has taken on new urgency as we see certain groups hit harder than others by the pandemic and nature crises. The private sector is playing a bigger role than ever in enhancing inclusion and standard of living across the globe via commercially viable business models and solutions.   

Improving quality of life focuses on what is needed for people to live comfortable and productive lives in this volatile and complex world. This goes beyond material needs. Its meaning could vary greatly among individuals depending on the context of the environmental, cultural and value systems in which they live.

In general, this theme embodies many of the UN SDGs. This can encompass access to a range of necessities including affordable healthcare, housing, water and sanitation, energy, food, financial services and technology that enhance the overall well-being of the individual and community. 

These sectors will continue to benefit from the growing world’s population, which is expected to reach 9.7 billion by 2050.⁹ In particular, we expect the growth of the world’s middle class and aging population to intensify. 

The emerging world’s middle class may hit 5 billion by 2027 and over a quarter of citizens in certain global regions will be aged over 65 by 2050.¹⁰ These long-term demographic shifts would have far-reaching impact on consumption patterns and demand for healthcare innovations. 

Exposure to these high-demand essential services can provide diversification for investors, as they are less tied to economic performance. 

The path to scaling improvement in quality of life must embrace fostering fair and inclusive growth. The aim is to enable diverse populations to have access to opportunities and essential services equally, bringing more participants into the mainstream economy to drive long-term growth. 

This has been challenged by political instability, the COVID-19 pandemic, climate crises and heightened divisiveness, especially so in developing countries. To navigate these challenges, investors can consider investments that help to reduce inequalities and empower the underserved communities. 

We have seen the use of technology and AI in diverse areas from medical healthcare, education to financial services as an enabler to bridge the gaps and reaching communities that might otherwise be left out. But digital transformation is not without concerns: discrimination, bias and misinformation could be amplified and disseminated if not properly managed. 

Cyber-security is foundational for an inclusive sustainability transition in this digital era. A strong cyber-security environment can improve trust, usage rate and commercial viability of digital innovations while preventing business disruptions and saving millions of dollars in potential costs brought by digital crime.  Cyber-security is one of the most compelling secular growth trends in technology and expected to have a potential addressable market of up to $2 trillion annually.¹¹

Sustainability issues are systemic issues, and they are intrinsically linked to one another. For example, ensuring good quality of life is only possible with food security, which requires access to clean water, energy, climate-resilient agricultural development and a productive workforce.

Both quality of life and inclusive growth can also be used by investors as a lens to improve business practices and mitigate investment risks. 

Socially responsible companies that incorporate diversity, equity and inclusion (DEI) practices in their businesses and/or prioritize stakeholders’ engagement, health and well-being can bring benefits to both employers and employees. They are more likely to attract and retain talent and clients from diverse backgrounds,¹² produce more innovative products¹³ and mitigate potential risks associated with negative publicity and litigation.

As such, investors should take a holistic approach to understand the interconnectedness of the various sustainability themes. This would help to mitigate potential associated risks and enhance value creation.