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ESG A multi-thematic approach to sustainable investing

Emme Kozloff Cheryl Wilson Julian Abdey Damir Bettini Nicholas J. Grace

31 January 2024

Ask 100 investors to give one example of a sustainable investment opportunity, and there’s a good chance many will mention something related to clean energy. Conversely, the odds of them citing “financial inclusion” or “health and well-being” are quite low. And yet, just like clean energy, these and other investable themes have a profoundly significant role to play in the world’s transition to a more sustainable future.

 

The United Nations estimates there is currently an annual US$4.3 trillion financing gap for the world to deliver against key environmental and social sustainability targets by 2030.1

 

We believe it will take a wide range of innovative companies to bridge this gap. This presents opportunities for investors that go beyond those typically considered in sustainable strategies.

 

Investing across multiple sustainable investment theme helps capture the interconnected nature of sustainability. It could also be advantageous for investors by helping mitigate the kinds of market challenges witnessed in recent years. By contrast, single-theme strategies can be volatile, because their exposures can be quite concentrated.

 

For example, some clean energy-oriented strategies have endured a bumpy ride with significant declines relative to the broader market in part due to rising interest rates; notably, this has hurt solar project earnings. Unintended style bias is another potential risk sometimes seen in single-theme strategies: historically, growth stocks (especially from the technology sector) have proven popular holdings.

 

Beyond the large investable universe and potential diversification, we believe a multi-thematic approach offers another important benefit: adaptability. At Capital Group, we have identified seven sustainable investment themes - mapped to the UN Sustainable Development Goals - that are, in our view, broad and durable enough to enable our investment professionals to adapt as innovations occur and regulations evolve over the coming decades.

 

Some of the more compelling opportunities of coming decades, we believe, should be reflected in our seven themes — among those companies that successfully innovate and adapt to structural change and disruption as the world transitions to a more sustainable future.

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Emme Kozloff is an equity portfolio manager with 32 years of investment industry experience (as of 12/31/2023). She holds an MBA from Harvard Business School and a bachelor’s degree from Pomona College.

Cheryl Wilson is an ESG senior manager at Capital Group, home of American Funds. She has 12 years of industry experience (as of 12/31/22) and has been with Capital Group for one year. She holds a master's degree in climate and environmental science from Queen's University and a master's degree in public policy from Columbia University, as well as a bachelor's degree in biology from Queen's University.

Julian Abdey is an equity portfolio manager with 28 years of investment industry experience (as of 12/31/2023). He holds an MBA from Stanford and an undergraduate degree in economics from Cambridge University.

Damir Bettini is a fixed income portfolio manager and research director with 32 years of experience (as of 12/31/2023). He holds a bachelor’s degree in aeronautical engineering from Queen Mary and Westfield College, University of London.

Nicholas J. Grace is an equity portfolio manager with 30 years of investment experience (as of 12/31/2023). He previously covered global mining companies as an analyst. He holds an MBA from the University of Wisconsin and a bachelor's from the University of Waikato, New Zealand. 

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1. Source UN, as at October 2022
Past results are not predictive of results in future periods. It is not possible to invest directly in an index, which is unmanaged. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.
 
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.
 
Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organisation; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.