Portfolio Adviser • Portfolio Adviser Magazine Responsible Investing • ACCELERATING THE TRANSITION TO A SUSTAINABLE FUTURE

In 2015, all 193 member states of the United Nations committed to the 17 Sustainable Development Goals (SDGs) in a concerted effort to end poverty and set the world on a path of peace, prosperity and opportunity for all on a healthy planet.

Six years later and one-third of the way into the SDG journey, the world is “tremendously off track” to achieve the SDGs by 2030, according to António Guterres, the secretary general of the UN.

While the original timelines may appear challenging, we believe this assessment overlooks the role that disruptive innovation could play in accelerating the pace of progress.

We have reached an inflection point in time, in which disruptive innovation is not only becoming more impactful but it is also accelerating the innovation process.

The proliferation and convergence of powerful technologies such as artificial intelligence, solar photovoltaic and wind power, as well as battery technology, whose costs and capabilities have been improving at a consistent trajectory, are democratising the research and engineering process, and subsequently, the current innovation cycle is unlike any other. In contrast to the industrial revolution, whose direct repercussions mainly concerned production methods, the current revolution is influencing every industry vertical.

Some of the most recent, major innovations are powering associated technologies, including the internet of things, electric and semi-autonomous vehicles, genetic sequencing and 3D printing, which have thrived with unprecedented speed and profoundly changed how we live and work. While the commercial impact of these innovations could be profound, they are also likely to bend the curve for each of the UN SDGs, thus, in our view, increasing the probability of many successes by 2030.

An expanding population and rising demand for food, energy and materials continue to strain the finite resources of the planet, and the need for solutions that improve energy efficiency, lower waste and provide alternatives to scarce resources has never been greater. Underlying these trends is the persistent increase in global emissions, which has led to intensifying debates around climate change and how to resolve it. This was highlighted by the recent IPCC report, which illustrated how under every scenario, the planet is on course to warm by at least 1.5C (from pre-industrial levels) by the end of the decade.

One way the R&S Global Equity Fund addresses this is through its exposure to the ‘Future of Mobility’. Currently, the global economy sends more than a 1,000 tonnes of CO2 into the earth’s atmosphere every second, 20% of which is attributable to ground transport. Meanwhile, human error is responsible for 90% of the 1.3m road fatalities per annum worldwide.

In an increasingly urbanised world, these direct and indirect costs are rising and placing greater pressures on the planet. However, as the current system is increasingly challenged, a more sustainable form of road transportation is emerging. Through a confluence of innovations in engineering, technology and regulation, an electrified system has the potential to eliminate many of the negative externalities of the past while delivering a considerable amount of opportunity and value to consumers and society more broadly.

Globally, around $8trn (£5.8trn) is spent on healthcare every year, representing roughly 10% of global GDP. The growth in expenditure for health provisions and associated services is expected to continue to outpace broader economic growth over the next three decades as populations age, placing significant pressures on budgets and capacity. And these challenges are simultaneously intersecting with technological breakthrough.

One way in which the R&S Global Equity Fund addresses this is through its exposure to ‘Frontier Medicine’. This cutting-edge side of medicine is developing new ways to treat health conditions previously poorly served. Frontier medicine also stretches past the innovation and development of medicines themselves but also the research enablers and quicker more effective diagnostics.

Disruptive innovation has been a critical component in enabling the evolution of our understanding of how and why diseases occur and ultimately how to treat them. One area in particular, genetic sequencing, has transformed the landscape over the past decade as advancements in cloud computing, machine learning and synthetic biology have driven a one-million-fold decline in the cost to sequence a genome since 1995.

Ultimately, disruptive innovation within frontier medicine has the potential to enhance the efficacy and accessibility of disease prevention.

At EdenTree, we see a strong positive correlation between sustainable development, innovation and long-term value creation. Our investment framework seeks to invest in companies that positively impact the planet and society, while at the same time ensuring we remain on the right side of disruptive forces that impact business models, sectors and global economies more broadly.

The views contained herein are not to be taken as advice or recommendation to buy or sell any investment or interest.