MARKETS & INVESTING
TREND # 1 :
A shift from climate commitments to delivery A lack of progress on global emissions reductions will move the climate discussion from long-term targets to delivery , and a focus on innovation and technology solutions . Delivery was given a shot in the arm thanks to the Ukraine war highlighting the weakness of energy systems vulnerable to geopolitical risks . As a result , emphasis will turn to scalable technology that can support the transition , and renewables growth will continue to outpace expectations . We expect the rush of long-term emission reduction targets to slow and become caveated with dependencies on regulators setting explicit rules , and consumers buying lower emissions products and services , as the reality of delivery becomes clear . We also expect brown-to-green transitions to face greater scrutiny , but will ultimately become more accepted as the duration and complexity of the energy transition become better understood by asset owners . The uncapped tax incentives within the Inflation Reduction Act in the US will drive faster adoption of clean tech in the US and we expect further regulation and activity from central banks and EU regulators , in particular highlighting the EU ’ s Carbon Border Adjustment Mechanism .
TREND # 2 :
Long tech , short oil won ’ t cut the mustard anymore It was easy to appear sustainable in the post-crisis era of easy money which generously rewarded growth . This led to the typical long-tech short-energy portfolio becoming the blueprint for sustainability due to its low level of easily measurable negative externalities such as carbon emissions , alongside positive exposure to cutting-edge technology that was improving people ’ s lives . We believe this somewhat superficial approach will cease to work going forwards , due to higher asset owner expectations , regulation and a different market environment .
TREND # 3 :
Definitions under the microscope Sustainable investment became a regulatory quagmire over the past couple of years with the introduction of the EU ’ s Sustainable Finance Disclosure Requirements ( SFDR ) and the Sustainable Finance taxonomy . This trend of regulators trying to untangle the interaction between financial , environmental and social systems , and different investment objectives will move from getting the basics in place to scrutinising how asset managers have interpreted the small print of the regulation .
TREND # 4 :
Evolving expectations of fiduciary duty and materiality There is a growing shift in defining fiduciary duty from shareholder wealth to shareholder welfare accompanied by the rise of stakeholder capitalism . This means asset owners are increasingly expecting asset managers to consider the concept of double materiality , whereby both the consequences of environmental and social issues on a company ’ s performance , as well as the company ’ s impact on the environment and society , are considered material .
TREND # 5 :
Politicisation of ESG ESG has been attacked in the US by politicians from both sides of the aisle . For the right , ESG represents a political cabal that is distorting markets and dangerously removing finance from crucial industries such as energy and defence . For the left , ESG is the latest game cooked up by Wall Street to extract higher fees using greenwashing . While the arguments often misrepresent , oversimplify or are overly reductionist , the critique of ESG as it becomes more mainstream will force higher quality approaches and transparency , which we view as positive . While political noise often misrepresents ESG , we expect these arguments will remain a source of news flow , thereby creating confusion for clients , thus asset managers must be clear regarding their investment philosophy and approach .
TREND # 6 :
The resurgence of the de-growth narrative The two dominant economic theories in sustainability either focus on de-growth or green growth . Green growth believes that it is possible to grow traditional metrics like GDP while reaching acceptable global pollution and living standards . De-growth believes that resource consumption needs to fall to enable society to live within an ecologic ceiling . Throughout 2022 , the degrowth narrative became more prominent due to the perceived ineffectiveness of green growth . Unless absolute global pollution begins to trend down , which we view as unlikely , the de-growth narrative will likely begin to slowly permeate into broader economic debate and Government policymaking . Companies with high exposure to commonly perceived ‘ over-consumption ’ issues , i . e . fast fashion and singleuse plastic , can expect to draw increased attention from regulators , consumers and clients .
TREND # 7 : A broadening of the agenda ESG has been dominated by climate and financial market regulation in 2022 . We believe that the focus will now shift to broader topics of biodiversity , considering planetary boundaries rather than specific environmental metrics and social issues such as food security , anti-microbial resistance and monopoly .
To find out more about our investment solutions available to UK financial advisers , please visit Carmignac ’ s website : carmignac . co . uk / en _ GB / model-portfolio-service .
Marketing communication : This material was prepared by Carmignac Gestion Luxembourg and is being distributed in the UK by Carmignac Gestion Luxembourg UK Branch ( Registered in England and Wales with number FC031103 , CSSF agreement of 10 / 06 / 2013 ). This document is intended for investment professionals and should not be relied upon by private investors or any other persons . It does not constitute personalized investment advice and must not be treated as a recommendation or an offer or solicitation for investment . The Discretionary Fund Manager of the model portfolio is RSMR Portfolio Services Limited , a limited company registered in England and Wales under Company number 07137872 . Registered office at Number 20 , Ryefield Business Park , Belton Road , Silsden BD20 0EE . RSMR Portfolio Services Limited is authorised and regulated by the Financial Conduct Authority under number 788854 . © RSMR 2021 . RSMR is a registered Trademark . Carmignac Gestion Luxembourg is the asset allocation adviser of RSMR for the construction of the model portfolio and does not have investment discretion over , or place trade orders for , any portfolio or account derived from this information . Investing involves risk . Past performance is not a guide to future performance . The value of investments and any income from them can fall as well as rise , is not guaranteed and your clients may get back less than they invest . The market value of , and the income derived from , the model portfolio may fluctuate in accordance with the values of the investments held by the portfolio , exchange rates between sterling and the currencies in which underlying investments are denominated , and other market conditions . References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities . There is no guarantee that risk ratings will remain static . The model portfolio is mapped against a selection of third- party risk profiling tools to assist professional financial advisers as part of suitability assessments for their clients . Such tools are however only one aspect of professional financial advisers ’ suitability process and other such as their clients ’ investment term / horizon and knowledge and experience should also be considered . CARMIGNAC GESTION Luxembourg , - City Link - 7 , rue de la Chapelle - L-1325 Luxembourg - Tel : (+ 352 ) 46 70 60 1 . Subsidiary of Carmignac Gestion - Investment fund management company approved by the CSSF . Public limited company with share capital of € 23,000,000 - RC Luxembourg B 67 549
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