Investment Outlook 2024: Sustainability and Impact

The “3D Reset” represents the three megatrends we see facing investors: decarbonisation, demographics and deglobalisation. By integrating sustainability and impact can we capture better these thematic investment opportunities in private markets?

Decarbonisation: It is widely accepted that the built environment accounts for 40% of global carbon emissions and that about 80% of buildings today are still going to be relevant in 2050. It is important that buildings currently in use operate sustainably, and that those being constructed or being planned for construction are built and operated sustainably.

Indeed a “green premium” is evident given rising demand for quality, sustainable spaces that, for example, are highly water- and energy-efficient and a current relative lack of supply.

There are also significant investment opportunities in the circular economy value chain. The circular economy is about reducing waste and pollution, and keeping materials in use for far longer than the traditional model of “take-make-use-waste”. Production processes in general are highly greenhouse-gas-intensive so the more we can produce with renewably energy sources, and extend product life (through, for example the second-hand economy), the better.

The decarbonisation challenge is influencing our strategy. This means not only decarbonising power with wind and solar, but also using clean power to decarbonise sectors you can electrify (e.g. transport and heating). New technologies like hydrogen and carbon capture and storage are also solutions we are currently looking at.

Demographics: Demographic trends like ageing populations mean shrinking talent pools in the developed world. But they also present opportunities to invest in, for example, healthcare solutions that not only relieve pressure on state systems but also make treatments more affordable and easier to access for patients.  

There are still some countries and regions – especially in emerging markets – that are benefiting from strongly growing populations. Africa, for example, is expected to see its population grow to around 2.5 billion by 2050.

In many emerging markets, small-to-medium-sized enterprises (SMEs) and micro enterprises, create a significant proportion of jobs but struggle to access financing. We see unique investment opportunities to bridge this gap by supporting financial institutions that in turn support entrepreneurs, and by providing direct loans to SMEs to help them grow (and generate financial return for investors) and contribute to socio-economic growth.   

Real estate investment opportunities have also been reshaped to address the needs of an ageing population in order to better cater for societal changes and their impact on the built environment across key markets.

Deglobalisation: As countries look to reconfigure supply chains and reduce cross-country dependencies, “nearshoring” or “reshoring” of production create investment opportunities for both developed and emerging markets (e.g. Mexico and Vietnam).

Deglobalisation could also have important consequences for the energy transition as energy security and local energy resources redirect the energy transition pathways to reflect country and regional priorities with implications for renewables and sustainable infrastructure sectors.

Private assets have an important role to play in the delivery of sustainability and impact outcomes while capturing the investment opportunities associated with a 3D reset.