We are in the midst of a Sustainability Revolution. With over 225 years of experience, and having navigated more than 40 economic crises, Lombard Odier is ideally positioned to navigate the upheaval, as an economy-wide transformation brings both new risks and era-defining opportunities for investors.
Today’s Wasteful, Idle, Lopsided and Dirty (WILD) economic model is unsustainable. We must move towards a new economy – one that works with, rather than against, nature, harnesses its regenerative power, and operates within its environmental limits. Lombard Odier calls this the CLIC® economy – an economy that is Circular, Lean, Inclusive and Clean.
It’s time to rethink everything®.
Rethink energy
The last two years have been defined by seismic geopolitical events – all have taken a toll on our energy systems. Since Russia’s invasion of Ukraine, sanctions imposed on Russian fossil fuel exports have exposed Europe’s perilous reliance on Russian natural gas imports, and driven consumer energy prices to long-term highs.
Two urgent questions arise from this: in the short term, where to get natural gas if not from Russia; and in the long term, how to embed resilience into the system.
On short-term supply, the hole left by the loss of Russian fossil fuels has been filled by imports of liquefied natural gas (LNG), while some European governments have warned they may even turn to coal. For the longer term, the solution is clear – renewable energy. To create more resilient and independent energy systems, the European Commission’s REPowerEU energy action plan will frontload the rollout of solar and wind power, heat pumps, and green hydrogen investment.
Alongside renewables, technologies that optimise demand and turn consumers into producers will tackle both the short and long-term problems at once. In many cases these technologies already exist: web-connected appliances, home hubs that communicate, home solar panels, and smart grids that smooth demand. Electric vehicles will become a nationwide battery pack. By charging at off-peak times, and returning power to the grid in moments of high demand, they will cover the gaps in renewable production created by still or overcast days. This will increase the viability of large-scale renewable projects and reduce the need for fossil fuel imports.
Rethinking energy systems in this way, pushing towards resilient, local, renewable supply, will accelerate the sustainability transition across all sectors.
Rethink food
The Ukraine war and subsequent sanctions had an almost immediate impact on other supply chains, notably agricultural products. Together, Russia and Ukraine are significant contributors to global cereal crop exports. The region is also an important exporter of the raw materials used in fertiliser production. With the supply chain cut, and natural gas prices skyrocketing, the price of both wheat and fertilisers quickly reached all-time highs. As the cost of food rose, protests followed in a number of import-dependent countries.
Finding a short-term solution to the food crisis will flow naturally from moves to build a more sustainable global food system for the long term. Today, one third of all crops are fed to animals rather than people – a widespread shift to plant-based diets will relieve pressure on grain supplies.
Regenerative farming, which focusses on creating healthier soils and cutting chemical inputs, will drive down the need for fertilisers. And innovations in packaging and food distribution networks will keep food fresher for longer while also cutting shelf-time, reducing both waste and the need for imports.
The transformation of energy systems will accelerate food’s transition to sustainability. Reliable and inexpensive renewable energy will bring down the cost of production for alternative proteins, and will enable vertical farms and indoor aquaculture to be built near to consumers, minimising food miles and increasing system resilience.
Rethink the economy
Today’s inflationary environment began in 2021, when a surge in consumer demand followed the lifting of pandemic restrictions – in December, US annual consumer price inflation hit 7%. In August of this year, with inflationary pressures amplified by the war in Ukraine, the eurozone experienced a record 9.1% inflation, stemming from high food and energy prices. With employment high, there is little room for manoeuvre for central banks to bring down inflation whilst avoiding recession. Investors, understandably, are nervous.
This geopolitical turmoil is being compounded by climate change. With today’s WILD economic model continuing to breach Earth’s environmental limits it is time to rethink the economy – to move from WILD to CLIC®.
Lombard Odier takes a science-based, forward-looking approach to investing. They assess individual companies’ climate-related exposure, and use their proprietary Portfolio Temperature Alignment Framework to evaluate the global warming trajectory of entire portfolios. Recognising that it is in the highest-emitting sectors that most investment will be needed, and that all sectors will continue to play a role in the economy of the future, Lombard Odier’s approach generates investment returns while accelerating the sustainability shift.
Think forward
There is only one way through today’s economic turmoil – forward. By investing in companies that will be part of the CLIC® economy – those firms that will provide solutions to the transition and that will lead their peers as the decarbonisers of tomorrow – investors can mitigate portfolio risk and take part in a once-in-a-generation opportunity.
The Sustainability Revolution is an unstoppable wave. It is bringing about faster and more fundamental change than could ever have been imagined. With deep expertise in sustainable investment, and a willingness to innovate and rethink investment solutions, Lombard Odier guides their clients forward.
Towards a future that has already begun.
Discover more about Lombard Odier's commitment to sustainable investment here.