The most investible sector within the environmental, social and governance (ESG) space is infrastructure, according to the head of multi-asset portfolio strategy at RBC Wealth Management.
David Storm said in an interview with International Adviser: “We can see the most investible areas are around water and energy.
“Infrastructure is a big area that you can make money in. Clean energy and clean water have an infrastructure angle.”
He also flagged up waste management linked to agriculture, but not agriculture itself.
“Infrastructure companies tend to have far more steady cash flows, they can deliver cash out to clients; and, as we are in a very low interest rate environment, this can be very attractive for portfolios.
“Most green bond issuances are around infrastructure, as we are going to constantly focus on the infrastructure to deliver on climate change initiatives.”
This comes months after the firm released its nine key megatrends that will have a big impact on the investment philosophy of the future.
Research by global management consultant McKinsey found an estimated $57trn (£43.6trn, €49.7trn) will need to be invested in infrastructure globally through to 2030. This total encompasses investments for transportation, power, water and telecommunications, and to put this in context, it exceeds the existing value of the world’s entire infrastructure.
Megatrends
The geopolitical and global macroeconomic developments that have emerged in the past few years, including trade wars and Brexit, have created uncertainty for investors.
Increased market volatility, fluctuating currencies and conflicting actions from governments around the world have made the idea of investing or switching portfolios less appetising.
But there has been a continuation of several global megatrends that are altering the world. These include large shifts in economic, social, political, environmental or technological areas that can be slow to form but last for decades; influencing governments, society and business.
IA asked Storm whether there is demand for this so-called megatrend investing, and whether the firm has an offering for clients.
He added: “All ages of clients are looking to invest in megatrends. Our high net worth individual clients are used to being exposed to tech devices. It is beyond generations the way people are thinking of investing in this stuff.
“Megatrends are in all of our portfolios to some extent. Last year we made a few explicit investments around megatrends but got across all of our portfolios.
“But you also pick up on the secondary exposure, with the ESG-dedicated portfolios that we have the fixed-income pieces are around green bond. We have explicit investments into green bonds and specific bonds that are specifically screened for ESG credentials.
“Clients whether they have these long-term horizons or not, they also think in terms of quarters, weeks or months. We are already invested short and long term with clients. We think these megatrends help frame the future for clients and allow them to make longer term choices.”
