Investing in the economy of tomorrow

This article was first published by Alliance Trust Investments on 24 November 2016.

Tim Jackson, Professor of Sustainable Development at the University of Surrey, and member of our advisory committee, looks at what tomorrow's economy will be like and why ATI are well placed to benefit from this inevitable shift.

Savings and investment represent a fundamentally prudential aspect of human behaviour. They embody a commitment to a shared future. A careful inspection of the investment portfolio speaks volumes about the state of a nation: the strength of its prudence, the morality of its markets and its vision for the future, not to mention its fiscal and financial stability. All of these can be gleaned from an informed examination of the national balance sheet.

Of course, attention to balance sheets was one of the things that went conspicuously missing in the years before the financial crisis. Policy-makers and investors alike missed (or turned a blind eye to) the imbalances and fragilities that were steadily accumulating as a result of lax financial policy and reckless market exuberance.

In retrospect, it was blindingly obvious. Net lending was dominated by disproportionate growth in lending to financial institutions. Instead of financing the real economy, finance was busy financing finance. Speculation was delivering a kind of casino economy. We were (almost literally) betting that the future doesn’t really matter. The ‘age of irresponsibility’, Gordon Brown once called it. Sooner or later it had to go bust – and might have done irreparable damage to society were it not for the deep pockets (and desperation) of the public debt.

It might have seemed as though it was just a financial crisis. But the dimensions of this irresponsibility were legion. Behind the now familiar story of speculation and hyper-financialisation lay a systematic distortion of the investment landscape: an irresponsibility towards people and planet. For too long, even productive investment in the real economy had been dominated by exposure to extractive industries, fossil fuels, materially damaging commodities, linear production processes: assets which must ultimately either degrade the environment and damage society or else end up hopelessly stranded.

In the last few years this threat of stranding has stimulated a popular (if somewhat unpredictable) pressure to divest away from fossil fuel industries, to hold companies accountable for the damage they cause, to situate an ethical burden of proof on investment managers. Shareholders (and fund managers) are beginning to exercise their power to reject companies which damage the environment, exploit supply chain labour or short-cut good governance. Ethical and sustainable funds are beginning to demand, in short, that our money should work for the common good.

The fact that these newer funds perform well, even against standard benchmarks, comes as a surprising challenge to the conventional wisdom. But it’s no real mystery. The value of investment today lies in the performance of the economy of tomorrow. And it’s becoming increasingly clear that the future will look rather different from the bankrupt financial architecture of the past. The days of privatising benefit and socialising cost are numbered.

Tomorrow’s economy will be built around resource efficient supply chains and low-carbon infrastructures, around fair wage deals and transparent governance, around the protection and restoration of social and environmental assets rather than their systematic destruction, around enterprise in the service of community and in harmony with nature. The first movers in this new investment landscape will (rightly) benefit from its many dividends. So too will the rest of society.

Tim Jackson is Professor of Sustainable Development at the University of Surrey and author of Prosperity without Growth – foundations for the economy of tomorrow (Routledge 2017).

 

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Key Risks

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

Some of the Funds managed by the Sustainable Future Equities team involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates.

Disclaimer

This content should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.
Thursday, November 24, 2016, 12:00 AM