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ESG Megatrends will transform the remainder of the 21st century

Beyond the traditional economic trends, environmental, social, and governance (ESG) factors are increasingly gaining prominence across the globe. From social unrest to pandemics and lockdowns; to environmental degradation and climate change; to the adoption of AI. In its latest Long-Term Outlook for 2023*, Aegon Asset Management Investment Strategist Gertjan Medendorp argues the current economic paradigm will be transformed during the remainder of the 21st century by a number of ESG megatrends.

 

He points out four such megatrends with the potential to create long term transformational changes:

 

AI & Automation 

“Where automation used to refer to technologies more physical in nature, such as dishwashers or robotization, nowadays the term implies a much wider range of technologies, including robotic process automation (RPA) and certain applications of artificial intelligence (AI) such as machine learning models (ML).

 

“Early adopters who effectively implement AI within their organization, could gain a competitive edge over their peers who are struggling or less willing to adapt. If implementation, albeit with varying impact, leads to increased efficiency and the automation of laborious tasks, this is likely to have a positive impact on the Gross Domestic Product (GDP). However, as we expect that most companies are still exploring the potential of AI, this is likely to only produce incremental productivity gains and therefore minor GDP growth in the short term.

 

“However, in a rapidly changing economy with increased focus on cost competitiveness, sustainability and mental well-being, we believe in the long term AI and advanced workplace automation may become an integral part of society. Despite valid concerns surrounding AI safety, regulation, and risks, there is a general consensus that these technologies eventually have the ability to significantly impact productivity and the economy in a positive way. Organizations and economies that are able to adapt smoothly and effectively are likely best positioned to reap competitive advantage.”

 

Climate change 

“To meet the goals in the Paris Agreement there is a need for immediate policy commitment, technological change, carbon removal, and a coordinated global approach.. These are transition risks for the economy and financial markets too. And all of this might not be enough to stop current trends in weather changes. The physical risks caused by climate change arise due to real-world environmental hazards, such as an increase in extreme weather events. These physical risks have both real-world and financial implications, for example, due to supply chain disruptions, changes in commodity prices, and physical damage to assets. In addition to having a major impact on the global environment and economy, climate change has a direct or indirect relationship with many other ESG megatrends.”

 

Water scarcity

“Climate change and water scarcity are closely intertwined with one another and could create a self-reinforcing feedback loop, exacerbating both issues. Investors should perceive water management as a distinct and crucial component in a climate change mitigation and adaptation strategy. Effective water management (preservation of water resources and more efficient use) can help to mitigate and adapt to the impacts of climate change and provide resilience against future water shortages. From an investors’ perspective, supporting technologies aimed at efficient water management can yield both financial returns and environmental and social benefits.”

 

Demographics

“Demographic changes have the potential to affect regions’ populations and consequently their economic environments in the upcoming years.

 

“The focus of recent studies, and of policymakers’ attention, has been the population dynamics in the developed world, which has been undergoing a shift in population age distribution for quite some time. However, it should be noted that many emerging markets have started their demographic transition, with various degrees of advancement. The sharp decline in fertility rates and the pressure from a changing age structure on investment rates possesses challenges for several emerging countries’ economies. In turn, these dynamics could also lower expectations for bonds and equities in countries that will increasingly dominate the emerging markets landscape.”

 

*Aegon Asset Management’s Long-Term Outlook 2023 can be viewed in full here: https://www.aegonam.com/en/aegon-insights/news-articles/long-term-outlook-2023/

 

 

-Ends-

 

Notes for the editor

 

About Aegon Asset Management

 

Aegon Asset Management is an active global investor. Our 375 investment professionals manage and advise on assets of €294 ($321/£253) billion (as of June 30, 2023) for a global client-base of pension plans, public funds, insurance companies, banks, wealth managers, family offices and foundations.

 

We organize our investment capabilities around four focused investment platforms where we have extensive asset-class expertise: Fixed Income, Real Assets, Equities and Multi-Asset & Solutions. Each platform has dedicated teams, organized globally and committed to maximizing their specialist areas. These platforms and the Fiduciary business are supported by a team dedicated to responsible investing. 

 

By organizing our investment teams globally, we work to harness our expertise and research resources across regional boundaries. We believe this enhances our performance potential and helps provide better investment outcomes for clients.

 

Across platforms, we share a common belief in fundamental, research-driven active management, underpinned by effective risk management and a commitment to responsible investment. Our investment platforms have the flexibility to organize their resources and processes to best suit their area of focus.

 

We are a global business: Our 1,200 employees work across Europe, the Americas and Asia. We invest globally and serve clients locally.

 

For more information about Aegon Asset Management, visit www.aegonam.com

 

This document is for use by professional journalists. Its content is written for use in trade publications. 

 

Past performance does not predict future returns. Outcomes, including the payment of income, are not guaranteed. 

 

Opinions and/or example trades/securities represent our understanding of markets both current and historical and are used to promote Aegon Asset Management's investment management capabilities: they are not investment recommendations, research or advice. Sources used are deemed reliable by Aegon Asset Management at the time of writing. Please note that this marketing is not prepared in accordance with legal requirements designed to promote the independence of investment research, and is not subject to any prohibition on dealing by Aegon Asset Management or its employees ahead of its publication. 

 

All data is sourced to Aegon Asset Management unless otherwise stated. The document is accurate at the time of writing but is subject to change without notice. Data attributed to a third party (“3rd Party Data”) is proprietary to that third party and/or other suppliers (the “Data Owner”) and is used by Aegon Asset Management under licence.  3rd Party Data: (i) may not be copied or distributed; and (ii) is not warranted to be accurate, complete or timely.  None of the Data Owner, Aegon Asset Management or any other person connected to, or from whom Aegon Asset Management sources, 3rd Party Data is liable for any losses or liabilities arising from use of 3rd Party Data. 

 

This document is issued by Aegon Asset Management UK plc in the United Kingdom and is issued by Aegon Investment Management B.V. in the European Union and European Economic Area. Aegon Asset Management NL is a trading name of Aegon Investment Management B.V. 

 

Aegon Asset Management UK plc is authorised and regulated by the Financial Conduct Authority. Aegon Investment Management B.V. is authorised and regulated by the Netherlands Authority for the Financial Markets.  

 

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Exp: Oct 9, 2024

Author

Gertjan Medendorp
Investment Strategist

Gertjan Medendorp CFA, is a senior investment strategist within the Fiduciary Services & Investment Solutions team.

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