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Global megatrends

How climate, nature and social change will reshape economies

Climate change, natural resource scarcity and social shifts are transforming the corporate landscape. Investors need to understand the implications of these sustainability megatrends to manage risks and seize opportunities.

Read this article to understand:

  • How global megatrends are reshaping the investment landscape
  • The investable opportunities related to climate change, natural resource scarcity and social change
  • How the megatrends connect

What happens to a company’s balance sheet when floods or wildfires lay waste to its assets? How does the fast-food industry respond when consumers turn up their noses at red meat? Why do firms that treat their staff well perform better than those that don’t?

Investors looking for answers to these sorts of questions need to pay close attention to megatrends – the seismic and interconnected changes occurring across economies and societies.

The megatrends encompass major global themes, from technological progress to shifting geopolitical power dynamics. But among the most transformational megatrends are those relating to sustainability: the climate crisis, resource scarcity and demographic and social changes, such as rising inequality.

Driven by regulation, technology, consumer behaviour and environmental conditions, sustainability megatrends affect every company in every sector. Firms that can transition their business models in line with these forces, or offer innovative solutions amid the disruption, should be well-positioned; those that cannot risk obsolescence, if not oblivion.

The future is already here

While they will play out across generations, sustainability megatrends are already bringing material consequences for companies and investors. Mining firms are benefiting from rising demand for copper and other metals needed to manufacture electric vehicles (EVs). Drones are being deployed to make agriculture more efficient and kinder to nature, generating lucrative new revenue streams for tech manufacturers.

Meanwhile, companies on the wrong side of the megatrends are encountering significant risks. Take the operators of the Dakota Access Pipeline in the American Midwest, who failed to consider how changing social attitudes would affect the project. When the pipeline encroached on indigenous rights and sparked an international outcry, the operating company and banks that financed it were hit with reputational damage and billions of dollars in costs.1

In this article, we explore the sustainability megatrends and the connections between them; assess the financial mechanisms across economic sectors; and pick out thematic risks and opportunities for investors.

Climate change

There is a broad international consensus climate change is a clear-and-present danger to all living things. But despite rousing political rhetoric and laudable net-zero ambitions, countries and companies continue to pump carbon into the atmosphere and global temperatures tick ever higher.

Every company will have to mitigate its emissions and every company will have to adapt to the consequences of a warming planet

Without decisive action, the world looks likely to miss the Paris Agreement target of limiting temperature increases to well below two degrees Celsius above pre-industrial levels (and ideally 1.5 degrees). The physical impacts of climate change – from floods to wildfires and searing heatwaves – are already affecting companies and will only become more severe, as set out in the Intergovernmental Panel on Climate Change’s (IPCC) sixth assessment report, published in March 2023.2

But climate change will have much wider implications. New regulation is damaging the revenues of carbon-intensive businesses. Improvements in technology and increasing investor focus on environmental, social and governance (ESG) factors are influencing the corporate landscape in myriad ways.

“There is still a widespread view that tackling climate change is all about renewable energy: solar panels and wind turbines. But it will affect every actor in the economy,” says Rick Stathers, climate pillar lead at Aviva Investors. “To prevent the worst climate outcomes and meet the Paris targets, every company will have to mitigate its emissions and every company will have to adapt to the consequences of a warming planet.”

Climate mitigation

Start with mitigation – the effort to reduce or eliminate greenhouse-gas emissions. The key driver here is policy: governments are likely to expand existing carbon-pricing programmes and introduce other regulatory measures to meet climate targets.

The situation is urgent: the longer it takes to reduce emissions to an acceptable level, the greater the risk of a hurried and chaotic transition and the likelier it is that the world will hit tipping points – thresholds that, once breached, lead to abrupt, dramatic and irreversible climate outcomes.

According to the International Energy Agency, only 23 per cent of global emissions were covered by carbon-pricing schemes as of February 2023.3 The failure to price carbon properly gives fossil-fuel companies an effective subsidy, allowing them to pollute the atmosphere without paying for the damage they cause. When you add in explicit subsidies –provided by governments to keep consumer costs low – fossil-fuel companies benefit to the tune of trillions of dollars every year. The International Monetary Fund forecasts total subsidies could reach as much as 7.5 per cent of global GDP by 2025.4

This suggests explicit subsidies will need to be withdrawn and carbon prices increased significantly to limit a further rise in temperatures (see Figure 1). Other policies to curb hydrocarbon use – including a cap on fossil-fuel extraction – could come into play, along with incentives to encourage consumers to change their behaviour and make climate-friendly choices.

Figure 1: Scenarios for climate policy, emissions and temperatures

CO2 emissions by scenario

How carbon prices may develop under different climate scenarios

Note: Full explanation of these scenarios is provided in the references.
Source: Network for Greening the Financial System, September 2022

Revenue streams among carbon-intensive businesses can be wiped out at the stroke of a legislator’s pen. Restrictions on the most-polluting activities are in the process of being enacted, threatening industries such as air travel and aviation freight: in December 2022, the French government moved to outlaw short-haul flights where low-carbon alternatives such as rail routes exist.6

As well as wielding the stick against laggards, politicians are increasingly offering carrots to companies leading the way on climate mitigation. Take the US government’s Inflation Reduction Act, an ambitious package that includes $370 billion in subsidies for green energy. Among the beneficiaries will be specialists in solar and wind power – which are becoming more cost competitive (see Figure 2) – but also providers of parts and services across infrastructure supply chains.

Politicians are increasingly offering carrots to companies leading the way on climate mitigation

The European Union is preparing its own Net-Zero Industry Act, which could create incentives for clean technology on the other side of the Atlantic.7 As industries switch from fossil fuels to electric power sources, companies working to upgrade energy grids should see new opportunities.8

A mixture of fiscal sweeteners, falling costs and evolving consumer preferences is boosting the fortunes of several sectors, including EVs. As transport decarbonises, the internal combustion engine will become a thing of the past. Manufacturers that cannot pivot to EVs will be burdened with stranded assets.

But the effects of these developments are radiating far beyond “green” sectors most obviously aligned to the climate transition. Take mining companies, which are seeing surging demand for the metals required for the technologies that enable electrification, such as copper and lithium.

These firms will, in turn, need to mitigate their own substantial emissions by switching from predominantly diesel-powered machinery. Industrial-equipment manufacturers that specialise in electric-powered technology are likely to be among the winners, but economic advantages should accrue to the sector as a whole. Electric machinery is both cheaper to run – lessening the need for costly ventilation systems to protect workers from particulate fumes – and carries weightier loads, offering productivity improvements.9

Figure 2: Cost of electricity by power source ($/mwh)

Source: Aviva Investors, BloombergNEF. Data as of January 2022

Climate adaptation

While efforts to mitigate emissions are underway, climate change is already happening. A certain amount of future warming is already “baked in” due to the way greenhouse gases are broken down in the atmosphere. Adaptation is imperative.

Even under the most ambitious mitigation scenarios, the negative effects of climate change will become more pronounced over the coming years, especially in the Global South. Despite this, only a fraction of the damage caused by storms, floods and wildfires is currently insured (see Figure 3).

While a world with more-frequent and costlier disasters might seem bad for the insurance industry, the increased likelihood of extreme weather events will raise the level of risk in insurance contracts and could allow some companies to benefit from higher pricing. German-based reinsurer Munich Re, which has expertise in analysing the financial consequences of climate events, is one example.

The increasing frequency of heatwaves and droughts means water security has become another crucial investment theme

The increasing frequency of heatwaves and droughts means water security has become another crucial investment theme. Research from the Organisation for Economic Cooperation and Development (OECD) estimates every EU member state will need to increase its expenditure on water supply and sanitation by at least 25 per cent by 2030, as a warming climate and increasing urbanisation combine to put more pressure on ageing infrastructure.10

Given the scale of the investment needed, there is expected to be increasing scope for private capital to play a role in plugging the funding gap. As climate change contributes to greater water scarcity, water utilities and companies working on desalination or water re-use technologies could be well positioned.

While droughts hit in some areas, others will be inundated as sea levels rise and flooding events become more frequent. New building methods and infrastructure are required to protect low-lying towns and cities. Design and engineering companies with expertise in adaptation, along with firms developing resilient and sustainable building materials, will be able to offer solutions.

The world will also need to adjust in other, more surprising ways. Health issues triggered by warmer weather and poorer air quality – such as hay fever and asthma – are expected to become more prevalent, stoking demand for effective and accessible treatments. Evidence suggests warming temperatures may prolong the breeding seasons for certain pest species, damaging crops but boosting growth in the $22 billion global pest-control market.11

Figure 3: Total climate-related damages and those covered by insurance, 2000-2022

Source: Environmental Research, June 28, 202212

Investable themes related to climate change

Investable themes related to climate change

Climate mitigation

  • Decarbonisation of transport:
    • Opportunities: EVs, batteries, fuel cells, rail, traffic software, electrification of flight
  • Decarbonisation of energy:
    • Opportunities: Electricity infrastructure and value chains, nuclear, hydrogen, mining for rare earths
  • Improvements in efficiency across industry and the built environment:
    • Opportunities: Industrial ICT, energy management in buildings

Climate adaptation

  • Need for greater water security
    • Opportunities: Utilities, desalination, water re-use
  • Transition to climate-friendly agriculture
    • Opportunities: Biotech, chemicals to improve yields
  • Rising sea levels
    • Opportunities: Aquaculture, sea defences, infrastructure construction
  • Rising temperatures
    • Opportunities: Treatments for water-related diseases and illnesses related to warmer weather; pest control as rising temperatures prolong breeding seasons
  • Increased frequency of extreme weather events
    • Opportunities: Insurance, reinsurance, microinsurance

Resource scarcity

While the threats of climate change are relatively well understood, less attention has been paid to specific risks associated with the human destruction of nature.

Since 1970, there has been an average fall in global animal populations of 69 per cent, mostly due to human-driven habitat loss, pollution and global warming.13 This has devastated biodiversity: the delicate balance and complex variety of life on Earth. It has also brought serious risks to human civilisation.

Sir Partha Dasgupta’s landmark Economics of Biodiversity report (2021) outlined how biodiversity underpins natural capital. Conventional economics does not recognise natural capital in its models, which means humans have been exploiting renewable and non-renewable natural assets – whether they be fossil fuels, redwood trees, sperm whales or pasturelands – without accounting for their future availability, or the impact on other economic assets and services. Natural capital has declined by an astonishing 40 per cent per head since 1992.14

The destruction of nature has not been seen as an existential crisis in quite the same way as climate change

Governments are belatedly moving to protect nature. At the 2022 UN Conference of Parties to the Convention on Biological Diversity (COP15), major economies announced a “30-by-30” pledge to safeguard 30 per cent of land and oceans by 2030, along with a promise to increase funding for biodiversity issues. As momentum builds, the World Economic Forum (WEF) estimates the transition to a “nature-positive” economy could generate $10 trillion of business opportunities over the next decade.15

“The destruction of nature has not been seen as an existential crisis in quite the same way as climate change, despite its material implications for companies and investors,” explains Eugenie Mathieu, Earth pillar lead at Aviva Investors. “There have also been few economic incentives for companies to curb practices that are harmful to nature. Unfortunately, nature has been free to exploit.

“But that is changing. As new regulation is enforced and consumers become more aware of threats to nature, companies whose products help mitigate these impacts and create solutions should see growth,” Mathieu adds.

Figure 4: The sixth great extinction (percentage of species threatened by extinction)

The sixth great extinction

Source: International Union for Conservation of Nature’s Red List of Threatened Species, 202216

Sustainable land

Start with land use. Many industries share the blame for unsustainable practices in this area – textiles manufacturers grow pesticide-intensive crops and degrade the soil, while chemical companies have allowed their products to leach into watercourses.

But farming, particularly to produce meat, is the principal culprit. Global agriculture is responsible for 80 per cent of worldwide deforestation, 29 per cent of greenhouse-gas emissions and up to 70 per cent of freshwater use.17 It is also enormously wasteful; around one third of food produced is lost, either through supply-chain issues or because it is thrown away – this at a time when millions of people around the world are still going hungry.

Inflicting further damage on nature through intensive farming will limit countries’ ability to produce the food required by growing populations. Governments are under pressure to increase supply while curbing the worst climate and biodiversity impacts of agriculture. New regulation is in the offing: the EU’s “Farm to Fork Strategy” targets reductions in the use of pesticides (by 50 per cent), fertiliser (20 per cent) and agricultural antibiotics (50 per cent) by 2030.18

As these trends play out, companies whose products contribute to sustainable land use should benefit. WEF research suggests precision agriculture methods, which are less damaging to nature, could also improve productivity, boosting large-scale farm yields by 40 per cent over the next two decades.19

The knock-on effects are being felt across sectors. Companies such as industrial technology firm Trimble are seeing increasing demand for their products, from GPS sensors that enable tractors to deploy fertiliser more accurately, to drones that can swoop over crops, collecting data, sowing seeds and even spotting the early signs of leaf blight.20 Producers of natural fertilisers and biopesticides are also projected to see significant growth.21

Firms that can demonstrably limit their impact on nature already benefit from government subsidies and are more likely to escape punitive taxes and regulation in future. At the same time, consumers are selecting foods produced without harming the natural world, fuelling demand for plant-based alternatives to meat and dairy, as well as organic produce.22

Studies suggest alternative proteins could capture ten per cent of the global meat industry by 2030 – up from less than one per cent in 2017 – to create a market worth $85 billion (see Figure 5).23 One report projects the plant-based protein industry will achieve a 16 per cent compound annual growth rate through 2027, with most growth coming from the US and Western Europe.24

Figure 5: Projected growth in alternative proteins

Note: H = High growth scenario. L = low growth scenario. Remainder are base case scenarios.
Source: FAIRR, October 25, 2022

Sustainable oceans

Greater awareness of damaging land use and extinction of terrestrial species is matched by public uproar at the effects of human activity on the oceans. Blockbuster documentaries such as Netflix’s Seaspiracy and the BBC’s Blue Planet and Wild Isles have highlighted the consequences of ocean pollution, from depleted fish stocks to the vast reefs of discarded plastic bobbing across the open waves.

Global seafood consumption is expected to be 18 per cent higher in 2030 than in 2018 – and tackling the industry’s most damaging methods is a key priority. A recent United Nations report found 35.4 per cent of fish stocks were harvested unsustainably as of 2019 and some species are already becoming scarce.26 In 2022, Alaska cancelled its snow crab season – which supported an industry worth an estimated $160 million annually – as species numbers plunged by 80 per cent.27

China, Japan and the EU recently banned certain fishing practices and tighter regulation is driving sustainable aquaculture. There have been new innovations in fish feed – based on insect, algal and even methane-derived sources rather than other fish – and vaccines for diseases among farmed seafood species.

We are also seeing a revolution in land-based aquaculture techniques. These could benefit both marine ecosystems and also the consumer, as they mitigate some of the risks of farming fish in open waters, such as the damage caused by antibiotics, fish excrement, escaping fish and sea lice. By producing fish much closer to consumer end markets, land-based methods can also reduce the carbon footprint generated by the industry’s current reliance on air-freight logistics.28

Tackling the causes of ocean pollution is another area of focus for politicians, businesses and consumers, with plastics the principal target. Retailers and manufacturers that can reduce the number of single-use plastics in their products by shifting to other materials should avoid regulatory penalties and attract new customers. Supermarket giant Tesco reports sustainability is now second only to price in its surveys of customer priorities, with 90 per cent of customers saying they want to “live more sustainable lives”.29

Figure 6: Plastics pollution (million metric tonnes)

Plastics pollution

Source: Aviva Investors, August 202230

The circular economy

These developments are driving a related trend – the circular economy. Predicated on the “three Rs” – the need to reduce, re-use and recycle materials to mitigate environmental damage – it is putting inefficient companies under the spotlight and creating opportunities for leaner disruptors.

Take the textiles industry, which faces pressure to change amid rising awareness of the wastefulness of “fast fashion”. Switching to a circular economy would not only reduce the industry’s emissions and impacts on nature – notably its vast water usage – but also bring down companies’ costs and reduce their exposure to price volatility. Increasing the current rate of circularity of textile waste from 14 per cent to 30 per cent could generate savings worth $130 billion per year by 2030.31

Circular models in the automotive sector could reduce costs by up to $870 billion per year by 2030

Opportunities are emerging in fashion-as-a-service rental or subscription models, with some resale and rental platforms already reaching billion-dollar valuations. Sustainability leaders among mainstream apparel brands also look well positioned.32

While textiles is the most conspicuous example, most industries would benefit from adopting these principles. For instance, circular models in the automotive sector could reduce costs by up to $870 billion per year by 2030, based on recovering the cost of materials including plastics, metals and alloys.33

Reducing or re-using materials is preferable from a natural capital standpoint, but more recycling will also be required if a circular economy is to become the norm across industries. Recycling facilities should consequently see greater demand and alternatives to plastic may become the preferred option among businesses and consumers. Aluminium producers are set to be beneficiaries; the metal is a good candidate for a packaging alternative because it is infinitely recyclable. By contrast, paper and plastic can only be recycled a certain number of times and are “downcycled” in quality each time.34

Investable themes related to resource scarcity

Investable themes related to resource scarcity

Sustainable land

  • Growth of nature-friendly and precision agriculture:
    • Opportunities: Drone technology, geospatial data solutions, vertical farming, feed additives to reduce methane emissions from livestock, hazardous waste management
  • Growth in demand for sustainability information:
    • Opportunities: Providers of sustainability traceability, monitoring and verification
  • Growth in demand for alternative proteins
    • Opportunities: Plant-based proteins and lab-grown meat

Sustainable oceans

  • Growth in demand for sustainable seafood
    • Opportunities: Mariculture, sustainable fish feed, fish health
  • Increased regulatory and consumer pressure to reduce water pollution
    • Opportunities: Water treatment, smart sensors to reduce water leakage
  • Increased regulatory and consumer pressure to reduce plastic pollution
    • Opportunities: Recycling/biodegradable materials

Circular economy

  • Increased regulatory and consumer pressure to re-use materials
    • Opportunities: Sustainable packaging, waste treatment, durable consumer products, eco-design, aluminium

Demographic and social change

As well as environmental factors, megatrends encompass changes in society. Demographics are shifting, with ageing populations in China, Japan and Western Europe likely to affect savings rates and demand for healthcare and certain financial products. In developing economies, growing cohorts of younger people will drive growth in technology and other services.

One of the most significant – and troubling – of these trends relates to the unequal distribution of resources (see Figure 7). Although inequality between richer and poorer nations has fallen over the past four decades – largely down to globalisation – inequality within countries has risen sharply. According to the Business Commission to Tackle Inequality, the richest ten per cent of the world’s population now owns more than three-quarters of total wealth, while the poorest half of the population owns just two per cent.35

Intersecting with the wealth and income gap are stark inequalities of opportunity. People continue to face discrimination based on characteristics such as race, gender, ethnicity, religion, disability, sexual orientation, place of origin or socio-economic background, which can dramatically affect their health, economic prospects and quality of life.

Companies and investors often overlook the risks and opportunities associated with how they treat people

Inequality is not just a moral issue – it poses systemic risks that threaten economies and businesses. Because those on higher incomes tend to save more, and those on low incomes have less scope to invest in education and skills, inequality tends to sap overall productivity and impose a drag on growth. OECD estimates suggest rising inequality reduced GDP growth by between six and nine percentage points in the US and UK between 1990 and 2010.36 There is also evidence to connect high levels of inequality with an increased incidence of financial crises.37

Growing awareness of the problems inequality causes is leading to regulatory shifts and changes in consumer attitudes, affecting the ways in which businesses operate. Companies that cut corners on employee protections or connive in human-rights abuses across their supply chains are encountering new legal and reputational hazards.

“Companies and investors often overlook the risks and opportunities associated with how they treat people,” says Vaidehee Sachdev, people pillar lead at Aviva Investors.

“For too long, social issues were ignored – people were taken for granted in corporate and economic models, considered inputs into the production process and little more. But now the costs associated with poor labour practices or mistreatment of communities – and the opportunities being created for companies driving improvement in standards – are becoming clear. Investors, too, must recognise and address the role they play in promoting and benefiting from business models that exacerbate inequality.”

Figure 7: Rising inequality – average annual wealth growth rate, 1995-2001 (per cent)

Rising inequality

Source: World Inequality Lab, 202138

The transition to a more equitable society

For an illustration of how companies may be affected, consider Energy Transfer Partners (ETP), the US firm responsible for the Dakota Access Pipeline. The Standing Rock Sioux Tribe, whose ancestral lands the pipeline crossed, successfully galvanised international support against the project and brought legal action to halt it. ETP suffered reputational damage, a hit to its share price and billions of dollars in additional costs.39

The episode shows the risks companies face during the transition to a more equitable society. Heightened scrutiny and growing expectations among stakeholders – including consumers, employees, civil communities and the media, along with greater “allyship” and coordination between growing social movements internationally – are starting to have an impact on company behaviour.

Consumers are increasingly demanding firms align with their principles before winning their business. The 2023 Edelman Trust Barometer, a survey of 32,000 people across 28 countries, found 63 per cent of respondents bought from or advocated for brands that shared their values.40

Such social shifts are being buttressed by new regulation, which in some cases carries penalties for companies that fail to do due diligence to ensure their operations are aligned with the UN Guiding Principles on Human Rights.41 A major new directive regarding companies’ sustainability due-diligence responsibilities is currently progressing through the European Parliament.42

On the positive side, benefits can accrue to companies that take human rights seriously. Research from the UK Department for International Development finds compliance with labour standards improves firms’ positions in supply chains and importers and buyers prefer doing business with suppliers with higher social standards.43

Similarly, companies face higher expectations regarding their treatment of staff. Firms that offer low wages and poor working conditions are coming under pressure – takeaway company Deliveroo’s IPO was shunned by some socially conscious investors, for example – while those that promote a decent working environment do better. Evidence shows a positive correlation between good treatment of employees and market performance.44

As well as their treatment of employees, companies’ relationship to wider society is becoming a prominent issue

A recent study of US companies ranked among Fortune magazine’s Best Places to Work between 1984 and 2020 showed these firms consistently generated excess returns and fared particularly well during crises (see Figure 8).45 Another study by Harvard University academics in 2015 found evidence companies’ treatment of staff was material to financial performance, such that assessments of “human capital” should be included in standard investment analysis.46

As well as their treatment of employees, companies’ relationship to wider society is becoming a prominent issue. Increasing attention is being paid to corporate tax avoidance, estimated to reduce the annual tax take among OECD countries by $100-240 billion.47 By depriving governments of revenues for social programmes, companies failing to pay their fair share potentially destabilise the societies they hope to generate revenue from and threaten their own social license to operate. Norges Bank Investment Management, which runs Norway’s gargantuan sovereign wealth fund, is among the investors pushing back against aggressive tax behaviour on this basis.48

Figure 8: Employee satisfaction and stock-market returns, 1984-2020

Source: Financial Analysts Journal, July 27, 202249

Solutions to social problems

As these trends play out, companies providing solutions to problems related to social inequality should see opportunities to improve their revenues while also contributing to broader economic gains.

Steps towards gender parity, for example, could add $13 trillion to global GDP and create 230 million new jobs for women, according to recent research.50 Similarly, a recent academic study suggested the economy of a single US state, New Mexico, could be as much as $8 trillion bigger by 2030 if it eliminated racial disparities in pay and other inequalities of opportunity.51

Companies providing products and services to underserved communities can reach new markets and tap growth opportunities

One effective way to mitigate inequality is to improve access to vital resources. The World Bank has found well-designed financial products and services can bolster low-income families’ economic resilience by helping them to manage risks and deal with sudden changes in their circumstances.52 Companies providing products and services to underserved communities can reach new markets and tap growth opportunities while also promoting financial inclusion.

Access to education is another key theme. As climate change reshapes economies, and advances in artificial intelligence and other new technologies transform the working environment and threaten to exacerbate income and wealth inequality, firms that provide education, skills and retraining should benefit, especially as there is often a lack of public provision for these kinds of services. The wider economic gains could be vast: WEF research finds investment in employee upskilling could yield a $6.5 trillion boost to global GDP by 2030.53

Finally – and perhaps most important of all – is access to healthcare. COVID-19 highlighted disparities in health outcomes within and between countries: poorer communities in rich nations were more likely to get sick and poorer nations found it harder to obtain vaccines.54,55

Companies that can provide healthcare services to those who usually struggle to access them – such as diagnostic specialist Qiagen, which played a vital role in widening the availability of coronavirus tests – are expected to see greater demand over the coming years, especially given the increasing likelihood of future pandemics and projected rise in vector-borne diseases due to climate change.56,57

Investable themes related to demographic and social change

Investable themes related to demographic and social change

The transition to a more equitable society

  • Increasing focus on corporate responsibility to respect human rights
    • Opportunities: Companies that mitigate human rights risks and remedy harms through robust due diligence, build stronger reciprocal relationships with stakeholders, and provide greater transparency over business relationships and supply chains
  • Growing expectations on companies to promote decent work and equality
    • Opportunities: Companies that promote practices that support human capital development, through nurturing and developing people across value chains
  • Heightened scrutiny over companies’ role as corporate citizens
    • Opportunities: Companies to strengthen social contract by contributing positively to society through responsible tax practices and supportive progressive public policy efforts 

Social solutions

  • Growing demand for skills and development/education 
    • Opportunities for providers of education, re-skilling and training programmes as technology, climate change and the COVID-19 fallout disrupt workforces
  • Increasing need for financial security and resilience
    • Opportunities for providers of financial services and products to underserved groups to improve their financial security
  • Increasing need for inclusive healthcare
    • Opportunities for companies providing treatments and diagnostic services to populations as climate change creates new threats

How megatrends connect

As the link between climate change and disease illustrates, megatrends are not linear; they intersect in various ways. Global warming contributes to the erosion of natural capital and threatens the social wellbeing of communities least responsible for the problem, even as social objectives in advanced economies are achieved at the cost of transgressing environmental boundaries (see Figure 9). It is important to ensure the transition to a low-carbon and nature-positive economy is not only fast, but also just.58

Investors must be careful to ensure they are not aligning their portfolios with one megatrend while ignoring others

Trade-offs abound and investors must be careful to ensure they are not aligning their portfolios with one megatrend while ignoring others. For example, solar panels used in the West are often manufactured in China by companies implicated in the forced labour of Uighur and other mostly Muslim ethnic groups in Xinjiang province – an asset contributing to the climate transition is therefore implicated in social risk.59

On the other hand, keeping track of the connections between the megatrends can enable investors to access a tap into a range of opportunities and identify companies that deliver solutions across climate, nature and society.

Consider chemicals giant DSM, which is phasing out harmful toxins and creating innovative new livestock feeds to substantially reduce the methane emissions from cattle herds, thereby protecting natural capital and the climate.60 Similarly, verification companies such as Bureau Veritas, which trace supply chains for products including palm oil, can help investors identify climate and biodiversity impacts and monitor and protect labour standards in developing economies.61

A holistic approach

Investing in line with megatrends is not simply about selecting winners and avoiding losers – companies are not static entities and performance against ESG metrics can improve as well as deteriorate.

Shareholders and bondholders can work with investee companies to improve their practices

Shareholders and bondholders can work with investee companies to improve their practices, bringing about positive environmental and social outcomes while mitigating financial risk. They can also engage with policymakers to level the playing field and remove damaging regulatory incentives through “macro stewardship”, helping make the broader financial system more sustainable and resilient.62

Uncertainties remain; one only needs to look at the shocks of recent years to see how economic and market predictions can be knocked off course. Megatrends could play out in unexpected ways or catalyse new, as-yet-unforeseen shifts. But a growing body of evidence points to the material salience of climate change, resource scarcity and demographic and social dynamics. Investors who can grasp the implications should be best placed to navigate the challenges and opportunities today and create resilient portfolios for tomorrow.

Figure 9: Developed economies (and some fast-growing emerging economies) have achieved social goals by transgressing ecological boundaries


Ecological boundaries - Malawi


Ecological boundaries - China


Ecological boundaries - US

LS = Life Satisfaction; IN = Income Poverty; DQ = Democratic Quality; LE = Healthy life Expectancy; EN = Access to Energy; EQ = Equality; NU = Nutrition; ED = Education; EM = Employment; SA = Sanitation; SS = Social support.

Note: Green wedges show resource use relative to a biophysical boundary associated with sustainability. Red wedges show shortfalls below the social threshold (in the middle of each circle) or overshoots beyond the biophysical boundary (on the outer edge).
Source: Nature Sustainability, 201863


  1. Carla F. Fredericks, et al., “Social cost and material loss: The Dakota Access Pipeline,” First Peoples Worldwide, University of Colorado Boulder, November 2018
  2. “AR6 Synthesis Report: Climate change 2023,” IPCC, March 2023
  3. “Fossil fuel subsidies in clean energy transitions: Time for a new approach?”, International Energy Agency, February 2023
  4. “Fossil fuel subsidies,” International Monetary Fund, 2022
  5. “Scenarios portal,” Network for Greening the Financial System, September 2022
  6. Lottie Limb, “It's official: France bans short haul domestic flights in favour of train travel,” Euro News, April 4, 2023
  7. The Green Deal Industrial Plan: putting Europe's net-zero industry in the lead,” European Commission press release, February 1, 2023
  8. “Global Equity Income Q&A: Richard Saldanha on dividends and downturns,” Aviva Investors, October 28, 2022
  9. “Will electrification spark the next wave of mining innovation?” EY, 2019
  10. “Financing water supply, sanitation and flood protection: Challenges in EU member states and policy options, OECD studies on water,” OECD, 2020
  11. Maxime Damien and Kevin Tougeron, “Prey-predator phenological mismatch under climate change,” Current Opinion in Insect Science, Vol 35, October 2019; Sizah Mwalusepo, et al., “Predicting the impact of temperature change on the future distribution of maize stem borers and their natural enemies along East African mountain gradients using phenology models,” Plos One, June 2015
  12. Ben Clarke, et al., “Extreme weather impacts and of climate change: an attribution perspective”, Environmental Research, June 28, 2022
  13. “Living planet report 2022,” World Wildlife Fund, 2022
  14. Sir Partha Dasgupta, “The economics of biodiversity: The Dasgupta Review,” February 2021
  15. “New nature economy report II: The future of nature and business,” World Economic Forum, July 14, 2020
  16. “More than 40,000 species are threatened with extinction,” International Union for Conservation of Nature’s Red List of Threatened Species, 2022
  17. “Living planet report 2022,” World Wildlife Fund, 2022
  18. “Farm to Fork strategy for a fair, healthy and environmentally-friendly food system,” European Commission, May 2020
  19. “New nature economy report II: The future of nature and business,” World Economic Forum, July 2020
  20. “New nature economy report II: The future of nature and business,” World Economic Forum, July 2020
  21. “Biopesticides: A Global Strategic Business Report,” Global Industry Analysts, 2016
  22. A policy to reward farmers with carbon credits for increasing the amounts of carbon sequestered in their soil has successfully been trialled in Australia, for example. See “New nature economy report II: The future of nature and business,” World Economic Forum, July 2020
  23. “I can’t believe it’s not meat,” Barclays report, 2019
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  34. “Circularity, consumers and change: Making the switch to sustainable materials,” Aviva Investors, November 3, 2022
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  36. Federico Cingano, “Trends in income inequality and its impact on economic growth”, OECD Social, Employment and Migration Working Papers, No. 163, 2014
  37. “Why and how investors can respond to income inequality,” Principles for Responsible Investment, 2018
  38. Lucas Chancel, et al., “World inequality report 2022”, World Inequality Lab, 2021
  39. Carla F. Fredericks, et al., “Social cost and material loss: The Dakota Access Pipeline,” First Peoples Worldwide, University of Colorado Boulder, November 2018
  40. “2023 Edelman Trust Barometer,” Edelman, March 2023
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  43. Maho Hatayama, “Labour standards and firm growth,” Institute of Development Studies, October 25, 2018
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