UBS targets three climate themes for growth

Diversity, plant-based meats, and electric vehicles named in Davos Agenda report

French multinational Alstom announced its first contract for battery-electric regional trains in Germany for the Leipzig-Chemnitz route, which requires the train to cover 50 miles of non-electrified track. The company will deliver 11 Coradia Continental BEMU trains, above, starting in 2023. The deal is valued at more than $100 million.

(Robert Powell, CFP, is the editor of TheStreet's Retirement Daily, a columnist at USA Today; and host of the Callaway Climate Insights podcast.)

BOSTON (Callaway Climate Insights) — The green agenda is a central part of sustainable investing, according to a new report by UBS. 

But there’s more to the environmental, social, and governance (ESG) push than just the “E,” the report notes. In fact, in its white paper for the World Economic Forum’s virtual Davos Agenda last week, UBS identified 10 pivotal ESG topics that are set not only to shape sustainable finance in 2021 and beyond, but also provide “many of the highest-growth opportunities in the decade ahead.”

“We think that sustainable investing presents long-term opportunities,” Amantia Muhedini, Sustainable Investing Strategist at UBS Global Wealth Management, said in a Callaway Climate Insights podcast.

Among those 10 themes, however, there are three worth noting: diversity and inclusion, plant-based meats, and electrification in transport.

Listen to the podcast:

Diversity

According to Muhedini, diversity and inclusion will become critical issues in the decade ahead for corporations as well as for “our overall collective economic success.”

In its report, UBS noted that: “the world has begun a period of significant structural change, labeled by economists ‘the fourth industrial revolution.’ But if technology is to be used to its best advantage, the right person needs to be hired in the right job at the right time. This means diversity in decision-making will become more important.”

What more, UBS thinks “2021 could see advances in starting to close the data gap to measure diversity.”

According to Muhedini, one challenge that ESG investors face is that there is relatively little disclosure about the diversity of publicly listed companies’ boards and senior leadership.

“Disclosure is a first order challenge that needs to be addressed before we can then start observing if companies are really making progress towards increasing diversity in their ranks,” she said. “Because diversity has become such a huge issue over really over the last decades, but in particular over the past five (years), and especially during 2020, companies are increasingly being called upon to disclose this data. And so this first challenge is the first one that will really be met starting with this year potentially, but really in the near future.”

Plant-based meats

“We think there is a food revolution underway,” said Muhedini.

In fact, the global plant-based meat market is expected to reach $51 billion by 2025, a threefold increase in penetration from 2019 levels, according to the UBS report. 

And there are two trends in the food industry worth noting according to Muhedini.

One is a generational shift in consumer diets and consumer preferences toward meat alternatives. And the other is gene-editing and gene modification technology for seeds, which could improve farm economics and alter food products. 

Electric transport

The trend toward electrification in transport, which has been going on for a while, will accelerate, and UBS expects electric vehicles to account for at least 40% of global new car sales by 2030. What’s more, UBS expects growth in pure battery electric vehicle sales to reach a 30% compound annual growth rate to $800 billion to $1 trillion annually by 2030.

Not surprisingly, battery technology is one of the areas UBS sees opportunities in green tech.

There are two reasons in particular why that’s so. Battery technology and alternative sources of energy costs are dropping, Muhedini said.

“We've seen battery technology costs drop significantly,” said Muhedini. “They've dropped by more than 50% in just the five past five years. So we expect full parity with the combustion engines to be reached very soon by 2025 at the latest.”

And UBS is seeing alternative sources of energy, different types of renewable energy, wind and solar chief among them, showing “really favorable economics.”

Bottom line for Muhedini: “These are really the three reasons why we think sustainable investing is here to stay and it will continue to be more mainstream and provide opportunities for long-term for investors.”