Invest in the growth of developing countries and benefit
Sustainable economic growth allows the creation of new jobs, livelihoods and prospects. It is therefore crucial to invest in emerging economies in order to promote prosperity there too. Sustainable investment strategies make it possible to invest in the growth of developing countries whilst generating returns at the same time.
A facility that produces tea in Kenya just might be a sign that the industrialization of Africa is headed in the right direction. The company that operates the factory was looking for clean, reliable sources of energy. This, say experts, is partly why industrialization on the African continent has been sluggish.
“The lack of affordable and reliable energy is a major impediment to economic growth in emerging markets,” says Matthew Tilleard, Managing Partner at CrossBoundary Energy, an investment fund focused on building industrial and commercial solar infrastructure in Africa.
The Kenyan tea factory is a good example of how CrossBoundary Energy works. It secures the funds to build custom, on-site solar power plants at no upfront cost to the client. “We finance and manage project construction, as well as ongoing maintenance,” says Tilleard.
CrossBoundary Energy’s approach takes much of the risk out of these sorts of investments, providing renewable energy that can be up to 40 percent less expensive than the alternatives in the region. What’s more, the solar energy that’s generated is not only used by the plant’s host, it’s also sold onto the wider power grid, meaning the reliable, clean energy is shared.
Tilleard’s company is one of a growing number of firms looking for such investments. This model for funding clean energy infrastructure, he suggests, could fuel an economic and social revolution across the African continent.
The cost of development
African countries want their chance to industrialize and step into the global economy,” says Tilleard. “African policy makers and economists rightly believe that energy intensive industries — like manufacturing — are needed to build robust economies.”
Leaders across the developing world consider they have a mandate to provide economic opportunity to their citizens through industrialization, yet face pressure from organizations like the United Nations and its sustainable development goals (SDG) to do so responsibly. The irony is that the developed world found prosperity by largely ignoring environmental impact.
“We have been borrowing resources from future generations in order to raise our living standards today,” says Paul Donovan, Chief Economist at UBS Global Wealth Management. “Environmental constraints on economic growth are becoming increasingly visible — whether that is the destructive power of natural disasters or simply a lack of resource.”
Economists agree this can’t continue. By 2030, the International Labor Organization estimates that 2 percent of working hours globally — essentially 72 million jobs — will be lost because of rising temperatures that compromise available work hours.
Were the developing world to power an industrial revolution with energy derived from hydrocarbons and thus emit ever more CO2 into the earth’s atmosphere, the impact on climate change and job security would almost certainly be negative.
Redirecting new investment
“We must learn to do more with less,” says Donovan. “That requires innovation and productivity. It also requires a climate where the existing way of doing things is challenged.” Fortunately, large corporations and governments are challenging themselves to drive sustainable growth practices.
This new focus on responsible economic development means socially and environmentally conscious investors can feel more comfortable putting their money in places they haven’t before, thus boosting economic opportunity in ever more places around the globe.
In the case of CrossBoundary Energy, returns-generating clean energy infrastructure is fast changing the way emerging economies and the multinational companies that want to put down roots in them can reliably do business.
Banks such as UBS have developed systems to evaluate environmental, social and governance (ESG) data in order to size up responsible investment opportunities likely to have traditional market returns. Based on these guidelines, UBS partners with organizations such as CrossBoundary Energy to connect the bank’s clients with sustainable investment opportunities.
“UBS clients tend to have a long-term view and often consider future generations,” says Donovan. “It is natural that they will have a particular interest in managing the issues of the environmental credit crunch.” A recent Morgan Stanley survey found that more than 80 percent of institutional investors say they already use or will adopt ESG principles when thinking about their investments.
Thanks to partnerships like those of UBS and CrossBoundary Energy, opportunities to foster economic opportunity, reduce environmental impact and make a good return are fast becoming one and the same.
Corporate governance and ethics
Views and opinions expressed are presented for informational purposes only and are a reflection of UBS Asset Management’s best judgment at the time a report or other content was compiled. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions contained in the content of this webpage have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any errors or omissions. All such information and opinions are subject to change without notice but any obligation to update or alter forward-looking statement as a result of new information, future events, or otherwise is disclaimed. Source for all data/charts, if not stated otherwise: UBS Asset Management.
Any market or investment views expressed are not intended to be investment research. Materials have not been prepared to address requirements designed to promote the independence of investment research and are not subject to any prohibition on dealing ahead of the dissemination of investment research. The information contained in this webpage does not constitute a distribution, nor should it be considered a recommendation to purchase or sell any particular security or fund. The materials and content provided will not constitute investment advice and should not be relied upon as the basis for investment decisions. As individual situations may differ, clients should seek independent professional tax, legal, accounting or other specialist advisors as to the legal and tax implication of investing. Plan fiduciaries should determine whether an investment program is prudent in light of a plan's own circumstances and overall portfolio. A number of the comments in the content of this webpage are considered forward-looking statements. Actual future results, however, may vary materially. Past performance is no guarantee of future results. Potential for profit is accompanied by possibility of loss.
© UBS 2020 The key symbol and UBS are among the registered and unregistered trademarks of UBS.