Last week we looked at three technology-driven trends that are reshaping our world and how investors should start to think about them. But for all the talk of the power of technology and a digitally-enabled future, businesses and financial markets are, at their core, human institutions.
This is arguably of greater importance to investors than cutting-edge intellectual property (IP). Technology, after all, only changes our world because we collectively allow it to. Even if Moore’s Law is superseded by new paradigm shifts in computer power, artificial intelligence and robotics, it’s always worth remembering that rates of social change and progress are rarely linear.
Change is, however, a constant. At the end of 2011, ExxonMobil (US:XOM) and Royal Dutch Shell (RDSB) occupied the first and fourth spots on the list of the largest companies in the world by market capitalisation. Fast forward a decade, and neither makes the top 30. Both oil giants have also just been handed separate though equally punishing legal orders to in effect accelerate their transition away from their core product and expertise.
Third-party pressure – in this case environmental activists calling for an end to the production of fossil fuels – can for decades seem remote, distant and harmless to even the mightiest of corporates. And then suddenly the law is on the side of the activists.
In a similar vein, science continues to expand our understanding of the world around and within us. This creates feedback loops with social attitudes and the way societies are governed. As we discuss below, where once there was only stigmatism around the use of cannabis, now there is a fast-growing, multibillion dollar industry for investors to unpick.
Anticipating where the next industry-altering set of attitudes and rules are coming from is a big part of the explosion in ESG (environmental, social and governance) investing, as we also unpack in this feature. This change is not without its own hucksters, hype and bubble-like qualities, but it nonetheless represents a re-girding of financial markets and the global economy that cannot be ignored.
“The ESG space has moved from being a world primarily driven by social activism into a sphere where people realise that ESG is also about not just not doing harm to the world, but not doing harm to themselves,” the Financial Times journalist and author Gillian Tett told us last year.
This interplay of risk management, social activism and the hunt for investment alpha looks set to be the overarching theme for investors to make sense of between now and 2030. Goodbye business as usual. AN
