The Case for Investing in Environmental Markets

The Pax World Global Environmental Markets Fund (PGRNX) invests in companies around the world that are developing innovative solutions in the areas of energy efficiency, water infrastructure and waste management technologies. We believe the leading companies in these markets are fast becoming major drivers of global economic growth as industries, governments and societies come to terms with a series of challenges associated with the need to transition to low-carbon, resource-efficient economic models.

Rapid population growth and rising affluence place ever-increasing demands on the world’s finite natural resources.

  • By 2050, the world’s population is expected to reach 9.5 billion people – almost a 50% increase over today’s population. This growth will be centered in less developed countries, many of which are already resource-challenged.1
  • At the same time, wealth is being created at an unprecedented level. It took the United States 53 years to double its national gross domestic product (GDP) during the 19th Century. In the 20th Century, it took Japan 33 years. But China recently accomplished this feat in just 12 years, and India’s economic ascendancy has been almost as rapid. What this means is that developing economies have vastly increased demand for resources to support their growth.2

“New normal” temperatures and weather events are placing significant pressure on food and water resources.

  • Extreme weather events are becoming far more common as global temperature rises. In 2002, there were three major floods in places around the world. In 2011, that number increased to 47.  We have also seen more frequent droughts, and increased instances of food and water shortages3

Replenishing reserves of natural materials is becoming increasingly difficult and expensive.

  • In 1997, there were 14 significant discoveries of ore in various places around the globe. In 2006, that number had dwindled to two. Yet the cost of the discoveries was significantly higher – $5 billion in 1997, $7.5 billion in 2006.4

At a time of rapid population growth, rising affluence in emerging markets, ever-increasing demand for scarce natural resources and, of course, climate change, a strong case can be made for investing in environmental markets – the development of efficiency solutions in areas such as energy, water, materials and waste. While the investment community has traditionally focused on supply expansion, today efficiency solutions are just as important, if not more so. We are running out of cheap resources. Investors ignore efficiency at their peril, and could miss out on an enormous opportunity for value creation.

Environmental markets today are comprised of some 1,400 companies with annual revenues in excess of $500 billion. We believe the leading companies in these environmental markets deserve a place in the portfolio of any investor who recognizes that investing today is very much about preparing for tomorrow.

 

1United Nations Population Division, “World Population Prospects, The 2008 Revision” taken from the Population Reference Bureau website
2Exhibit 8, McKinsey & Company report, “Resource Revolution: Meeting the world’s energy, materials, food and water needs”, November 2011, p34
3United Nations Environment Programme (UNEP), 2009
4McKinsey & Company report, “Resource Revolution: Meeting the world’s energy, materials, food and water needs”, November 2011, p48