Investing in Resource Optimization
Coverage of the Investment Innovation Conference.
BY Staff | May 5, 2016
Climate change and population growth are realities impacting the earth’s resources that cannot be ignored, and may offer investors new opportunities if viewed through a resource optimization lens explained Ken Locklin, Director at Impax Asset Management. He was speaking at the Investment Innovation Conference held in Los Angeles in October.
During his presentation, entitled “Global Resource Optimization”, he noted that “scarcity of resources and environmental constraints have cause the economy to react.” This has also “created new stresses in the economy and posed new risks for business and for investors. But it’s also created a whole wave of new opportunities.”
Locklin explained that factors such as population dynamics, inadequate infrastructure, resource scarcity and environmental constraints will shape global markets. They’ve also given rise to an entire range of sectors and companies focused on resource optimization – and investing in such technologies can create a portfolio that is poised to benefit from the fundamental changes happening in the environment. As he told the audience: “There really are opportunities for all of you to consider how you can optimize the response and reaction of your investment portfolios in the face of these changes.”
Areas such as energy, water, food and agriculture can offer diverse, high-growth market opportunities to tackle the shifting realities.
Industries and sectors focused on resource optimization include renewable energy, water technology, infrastructure, waste recovery and pollution control. There are opportunities to invest in sustainable forestry.
Locklin highlighted that these sectors have shown resilience to different market and economic conditions. But where do they fit in a portfolio? He suggested they could play a role in the context of high growth global equities, natural resources, infrastructure, and real assets – and they can find a place within a pension fund’s environmental, social, and governance (ESG) investments.
At the end of the day, however, ESG factors are risk factors – as he explained: “They’re real, they operate in the market, they impact companies on a global basis and if you aren’t managing for them, we think you’re missing some of the potential to get effective results from a portfolio.” Hence, ESG research can help ensure investments have high-quality governance, identify risks that can lead to fines, litigation and reputational risk and can reveal important information about the character of companies.
Changing global dynamics such as population growth, and rising living standards, can also be viewed as opportunities for growth in high-efficiency business models and can offer both cyclical and defensive investment opportunities.
Locklin concluded by reinforcing the idea that a resource optimization lens is a sound way to approach investments and renew the world. “The 21st century is a time when this approach really makes sense,” he said. “Resource optimization is one lens that really does provide value to investors across the field of activities.”