UBS singles out ten sustainable finance trends for 2021
In 29 years from now and in the best of worlds, nearly every business and investment should be deemed sustainable. Meanwhile, on the occasion of the World Economic Forum, Swiss financial group UBS has released a whitepaper on sustainable trends to follow this year that will fuel the awaited green shift of the global economy.
What is in the sustainable bag for 2021? More investor engagement, said UBS to begin with. The Swiss group's belief is that investor engagement will weigh more than regulation. It expects signatories of the Climate Action 100+ initiative to support “further escalation strategies for companies not showing enough progress including, shareholder resolutions, public letters, AGM statements and votes against management.” Asian asset owners and companies, as well as US firms, will be particularly in focus on the matter of greater disclosures and targets.
More targets but no plans
If UBS rejoices about the profusion of net-zero carbon targets set by multiple states and companies, set to propel capital reallocation to clean energy projects, it recalls the harsh reality: “We do not yet have scalable technologies to decarbonise our largest industrial sectors; and, so far, we lack plans, processes and regulatory constructs to turn aspirational targets into reality. All this presents an unprecedented challenge in terms of planning and coordination, which we must collaborate across borders to address.”
Besides, more assets will be poured in impact investing, UBS argued. In the company’s view, investors will be actively seeking “to identify and address sustainability challenges in areas ranging from climate to inequality to healthcare.” Diversity and inclusion, through reducing prejudice, is part of the Swiss financial’s ten sustainable finance trends of 2021 too. “This battle between the obvious benefits of diversity and inclusion and the political appeal of prejudice will determine more than economic success. Minimising prejudice is at the heart of the sustainability crisis too. If we want to maintain global living standards, we have to learn how to do more with less,” said UBS.
Always more data
Since targets and data inevitably pair, UBS forecasts the demand for sustainability data could drive the size of the related data and services market to more than $5bn in the next five years. Moreover, the Swiss group outlines that the development of ESG data and analytics lingers in an innovative phase and believes the quality of data offerings will keep improving. Talking data and reporting standards, the Swiss group said “the market underestimates how fast standards are converging.” “In the not too distant future, we see a world where more reliable and comparable sustainability data is reported alongside important climate related and financial data,” it foresees. Data will also be key to the climate transition analysis and stress tests of portfolios as well as of loan books, another 2021 sustainable trend “about to go mainstream.” Some 18 central banks will run climate transition stress tests in 2021.
The group’s whitepaper touches on a few sectorial issues, starting with the transportation sector. UBS projects that the sector “can be almost fully decarbonised by 2040” while forecasting electric vehicles will account for 40% of global new car sales by 2030. Said the firm, three drivers will contribute to the shift, namely battery technology, fuel-cell technology and regulatory framework. In the oil sector, the question is no longer whether but when, the Swiss group points out, adding that the energy transition could require $1.1trn investment per year.
“Oil and gas use is not going away completely. There are pockets of demand that will be difficult to abate. There could easily be up to gross 10 gigatonnes of CO2 still being emitted in 2050, even in the IEA’s Sustainable Development Scenario. To address this, green hydrogen for combustion, and carbon capture, utilisation and storage (CCUS) for offsetting emissions, will be critical to achieving the Paris goals,” UBS observed. Plant-based meats form another trend to follow given its market size could reach $51bn by 2025. UBS sees four growing “principle-based reasons” to buy these meats: environment, resource scarcity, animal welfare, health.
Said Ralph Hamers, group chief executive officer of UBS, “Sustainability is no longer just a talking point, but also a catalyst for action. Investors and companies should seek to get ahead of this transformation if they wish to navigate 21st-century risks and opportunities effectively.”