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Our Firm Strategies and Solutions Sustainable Investing Insights What is Sustainable Investing? Why Sustainable Investing? Why AllianzGI? Sustainable Ideas Sustainable Solutions

Anticipating the change 07/30/2019   

Summary The footprint of human consumption is continuously growing and stretching the boundaries of our Earth’s ecological capacity. While global GDP growth is broadly considered a key indicator of a healthy economic state, we may run into deep sustainability challenges if we continue “business as usual". All things being equal, we are on a path to consume DOUBLE the Earth’s annual ecological regenerative capacity by 2050. What does this generational challenge mean for society and in particular for investors?

Key takeaways

Human consumption is now estimated to be the equivalent to 1.7 times of what the Earth can naturally restore in a year and set to reach 2 times of Earth’s capacity by 2050.

To bring the size of the ecological Earth overshoot back to a sustainable level, we must rethink our lifestyles and economy.

The expected change will have long-term and far-reaching consequences across geographies and industries.

Active investment management is key to anticipate different scenarios and help prepare investors’ portfolios for the arising risks and opportunities.

Written by Dr. Steffen Hoerter, Global Head of ESG and Glenn Oliver Anderson, Global ESG Investments

Deciphering the numbers and the implications of 1.7x earth overshoot The Global Footprint Network annually computes an estimate of the worldwide aggregated ecological footprint. It shows the environmental impact that all the products and services the global population consumes, exceeds the regenerative strength of the Earth’s ecology. In particular, relating to carbon, croplands, fishing lands, forest and grazing lands. To be precise, as of 2018, we use 1.7 Earths per annum.1

Earth Overshoot = Ecological Footprint / Biocapacity

Because the Earth’s biocapacity is naturally limited and we cannot make more of it, the only way to bring back an equilibrium is by reducing our Ecological Footprint. Humans have first exceeded biocapacity in 1970. Since then the annual ecological deficit spending has steadily increased. If history is anything to go by, we know how overspending could end up. The trend is highly alarming.

Chart 1: Development of overconsumption gap estimated to 2050, Total Ecological Biocapacity and Footprint, Gha

Source: Global Footprint Network, http://data.footprintnetwork.org/#/ (02.08.2018).Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation

The overall historical trend of ecological biocapacity and ecological footprint: Ecological Deficit = Ecological Biocapacity (blue) – Ecological Footprint (Green)

How may the future numbers look like? The chart above extrapolates on how the overconsumption gap is set to widen even further from today’s levels. If everything continues as of now, by 2050, total humankind’s consumption will overshoot double the amount of Earth biocapacity. This outlook draws serious concerns on the long-term sustainability of global economic growth, the ecological balance and thus on global society which we know as of today.

There are fundamental trends that will put ever more pressure on the ecological and economical imbalance.

Global population growth is set to take off in the years to come and to levels unprecedented before. United Nations estimates there to be about 10 billion of human population by 2050, compared to the 7.5 right now.2 More people means more consumption, which means higher ecological footprint.

More emerging markets are adopting Western (over)consumption patterns. For example, Asia and especially, Africa are expected to show accelerated economic growth over the next decades 2. Rising wealth will imply higher demand for goods and services, such as, mobility, furniture and housing but also changing nutrition trends, like more consumption of meat. On top of this comes increasing urbanisation with its own negative effects on the environment. All of this will result in a more extensive use of natural resources, more carbon emissions and more waste, if consumer behavior will remain as it is today.

Top-down investment risk What does this all mean for investors? Ecological overshoot should be analysed from an investment risk and opportunity perspective. In the recent years, the World Economic Forum Global Risk Survey has been dominated by climate change.3 The Earth Overshoot framework offers additional dimensions to perceive long-term ESG investment risks quantifiably. Climate change and ecological deficit spending, of course, are deeply connected. Not only are they considered to be man-made, they also amplify each other negatively.4 Investor alertness on climate change as investment risk is rising and comparatively on higher levels.

Generally, global ecological risks should be considered a non-linear investment risk. While the graph understates the future in a linear development of earth overshoot, it is more likely that any additional stress on the ecological system creates exponential effects triggered by certain tipping-points along the path. Top-down, investors should aim to analyse what this means for long-term capital market assumptions and portfolio scenario planning, also considering unexpected extreme events due to butterfly effects.

Bottom-up investment risk From a bottom-up investment perspective, it is key to analyse which regions, industry sectors and corporates are particularly vulnerable to climate and ecological transition risk. And which opportunities arise on the horizon.

For example, agricultural and tourism sectors could be particularly exposed. On a country level, these sectors can constitute up to 10% of GDP if you take the example of Greece.5

On the other hand, consumer staples, utilities and energy will be particularly impacted by possible new environmental and energy regulations. Physical climate change and ecological risk will affect the overall supply risk and are likely to increase commodity, food and water prices dramatically.

Investment opportunities On the other hand, new types of services and products with reduced ecological footprint or offsetting footprint will likely be in demand. This creates potential investment opportunities into sectors and corporates, which contribute to themes such as smart cities, shared and circular economy, energy transition, but also waste reduction and smart materials.

Certain types of products like aluminium cans, sanitary and plastic based products can take up to hundreds of years to environmentally degrade. This will need to change.

One-off environmentally harmful products like plastic straws and cutlery are a dying breed of products that will need to be replaced through smarter materials and packaging.

Integrated ESG, SRI and Impact Investing How do our investment solutions address the potential risks and opportunities arising from ecological deficit spending and climate change?

In our mainstream investment strategies we analyse material risks and opportunities that arise from Environmental, Social and Corporate Governance (ESG). Following an Integrated ESG approach we consider trade-offs in these risk/return factors including climate and ecology in our security selection process, and actively engage with issuers in order to help them better mitigate ESG risks.

In our Socially Responsible Strategies (SRI) the quality assessment of ESG practices determines the portfolio construction putting a clear focus on “best-in-class” issuers that we think are best positioned to deliver sustainable financial returns.

Our Impact Strategies invest in projects or securities that are geared to intentional, forward-looking and measurable positive environmental and/or social impact helping investors to build or complement their lifestyle objectives into their overarching investment objectives.6, 7

Active stewardship is a key component of all our investment strategies helping corporates to develop a more sustainable business strategy adopting more ESG conscious business practices. Amongst others, engagement with corporate management can help mitigate ESG risks such as climate and ecological transition risk if we consider them material for the specific business’s future success.

1. Global Footprint Network, http://data.footprintnetwork.org/#/ (02.08.2018) 2. World Population Prospects: The 2017 Revision. New York: United Nations 3. WEF, The Global Risks Report, 13th edition (2018) 4. J. Cook, et al, “Consensus on consensus”, (13.04.2016) 5. World Bank Data, https://data.worldbank.org/ (03.08.2018) 6. Mobilizing capital towards green finance, Allianz Green Bond, July 2018 7. Life Cycle Assessment, UK Environment Agency (2011)

Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.

This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations.

This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG, licensed by FINMA (www.finma.ch) for distribution and by OAKBV (Oberaufsichtskommission berufliche Vorsorge) for asset management related to occupational pensions in Switzerland; Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association and Investment Trust Association, Japan];and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan. © 2018 Allianz Global Investors 580401

Recent Content

Sustainable ideas Sustainable ideas Sustainable ideas Sustainable ideas Land-based Aquaculture: Water infrastructure: why The impact of “green” Financing the transition: The Answer to Fish- investment is so urgently bonds funding the low-carbon Farming’s Existential needed economy  DISCOVER MORE Crisis?  DISCOVER MORE  DISCOVER MORE by Julien Bras | 07/26/2019  DISCOVER MORE 07/07/2021 07/22/2019

08/04/2021  

AllianzGI receives highest possible ESG Strategy & Governance score from PRI for third year in a row 08/01/2019   

Summary Allianz Global Investors, one of the world’s leading active investment managers, has received an ‘A+’ from the PRI Association for its overarching approach to ESG Strategy and Governance for the third year in a row. This category encompasses ESG policies, objectives, memberships and considers how the firm promotes ESG efforts internally and externally.

Key takeaways

AllianzGI awarded (A+) for its overarching approach to ESG Strategy and Governance

Receives A+ for “Listed Equity – Incorporation” for the first time

Scores underline AllianzGI’s position as a sustainable investing pioneer

 LOAD MORE

Active is: Allianz Global Investors Value. Shared.

  

© Allianz Global Investors 2021. All Rights Reserved. Privacy Policy Privacy Policy Privacy Policy Privacy Policy Privacy Policy Sitemap Sitemap Sitemap Sitemap Sitemap Contact Us Contact Us Contact Us Contact Us Contact Us FINRA BrokerCheck Business Continuity Plan Business Continuity Plan Business Continuity Plan Business Continuity Plan Business Continuity Plan Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records

Investment Products: NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED.

The information on this web site is intended for U.S. residents only. If you are a non-U.S. resident, please visit www.allianzgi.com. Unless otherwise indicated, the products and services described on this site are not available to non-U.S. residents.

Allianz Global Investors U.S. LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Allianz Global Investors Distributors LLC is a broker-dealer registered with the SEC and member of FINRA.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of AllianzGI nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement investor, contact your financial advisor or other fiduciary unrelated to AllianzGI about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances.

This site and all the information contained herein is general and/or educational in nature. Individuals should consult an investment advisor before making any investment decisions. By selecting a role and using this site you acknowledge your role and agree to the applicable terms for Sub-Advisory Investors, Offshore Investors and Institutional Investors . Contact Us Our Firm Strategies and Solutions Sustainable Investing Insights Our Firm Strategies and Solutions United States 

Sustainable Investing Insights Our Firm Products & Solutions Insights Sustainability Resources  SEARCH

Our Firm Strategies and Solutions Sustainable Investing Insights What is Sustainable Investing? Why Sustainable Investing? Why AllianzGI? Sustainable Ideas Sustainable Solutions

Anticipating the change 07/30/2019   

Summary The footprint of human consumption is continuously growing and stretching the boundaries of our Earth’s ecological capacity. While global GDP growth is broadly considered a key indicator of a healthy economic state, we may run into deep sustainability challenges if we continue “business as usual". All things being equal, we are on a path to consume DOUBLE the Earth’s annual ecological regenerative capacity by 2050. What does this generational challenge mean for society and in particular for investors?

Key takeaways

Human consumption is now estimated to be the equivalent to 1.7 times of what the Earth can naturally restore in a year and set to reach 2 times of Earth’s capacity by 2050.

To bring the size of the ecological Earth overshoot back to a sustainable level, we must rethink our lifestyles and economy.

The expected change will have long-term and far-reaching consequences across geographies and industries.

Active investment management is key to anticipate different scenarios and help prepare investors’ portfolios for the arising risks and opportunities.

Written by Dr. Steffen Hoerter, Global Head of ESG and Glenn Oliver Anderson, Global ESG Investments

Deciphering the numbers and the implications of 1.7x earth overshoot The Global Footprint Network annually computes an estimate of the worldwide aggregated ecological footprint. It shows the environmental impact that all the products and services the global population consumes, exceeds the regenerative strength of the Earth’s ecology. In particular, relating to carbon, croplands, fishing lands, forest and grazing lands. To be precise, as of 2018, we use 1.7 Earths per annum.1

Earth Overshoot = Ecological Footprint / Biocapacity

Because the Earth’s biocapacity is naturally limited and we cannot make more of it, the only way to bring back an equilibrium is by reducing our Ecological Footprint. Humans have first exceeded biocapacity in 1970. Since then the annual ecological deficit spending has steadily increased. If history is anything to go by, we know how overspending could end up. The trend is highly alarming.

Chart 1: Development of overconsumption gap estimated to 2050, Total Ecological Biocapacity and Footprint, Gha

Source: Global Footprint Network, http://data.footprintnetwork.org/#/ (02.08.2018).Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation

The overall historical trend of ecological biocapacity and ecological footprint: Ecological Deficit = Ecological Biocapacity (blue) – Ecological Footprint (Green)

How may the future numbers look like? The chart above extrapolates on how the overconsumption gap is set to widen even further from today’s levels. If everything continues as of now, by 2050, total humankind’s consumption will overshoot double the amount of Earth biocapacity. This outlook draws serious concerns on the long-term sustainability of global economic growth, the ecological balance and thus on global society which we know as of today.

There are fundamental trends that will put ever more pressure on the ecological and economical imbalance.

Global population growth is set to take off in the years to come and to levels unprecedented before. United Nations estimates there to be about 10 billion of human population by 2050, compared to the 7.5 right now.2 More people means more consumption, which means higher ecological footprint.

More emerging markets are adopting Western (over)consumption patterns. For example, Asia and especially, Africa are expected to show accelerated economic growth over the next decades 2. Rising wealth will imply higher demand for goods and services, such as, mobility, furniture and housing but also changing nutrition trends, like more consumption of meat. On top of this comes increasing urbanisation with its own negative effects on the environment. All of this will result in a more extensive use of natural resources, more carbon emissions and more waste, if consumer behavior will remain as it is today.

Top-down investment risk What does this all mean for investors? Ecological overshoot should be analysed from an investment risk and opportunity perspective. In the recent years, the World Economic Forum Global Risk Survey has been dominated by climate change.3 The Earth Overshoot framework offers additional dimensions to perceive long-term ESG investment risks quantifiably. Climate change and ecological deficit spending, of course, are deeply connected. Not only are they considered to be man-made, they also amplify each other negatively.4 Investor alertness on climate change as investment risk is rising and comparatively on higher levels.

Generally, global ecological risks should be considered a non-linear investment risk. While the graph understates the future in a linear development of earth overshoot, it is more likely that any additional stress on the ecological system creates exponential effects triggered by certain tipping-points along the path. Top-down, investors should aim to analyse what this means for long-term capital market assumptions and portfolio scenario planning, also considering unexpected extreme events due to butterfly effects.

Bottom-up investment risk From a bottom-up investment perspective, it is key to analyse which regions, industry sectors and corporates are particularly vulnerable to climate and ecological transition risk. And which opportunities arise on the horizon.

For example, agricultural and tourism sectors could be particularly exposed. On a country level, these sectors can constitute up to 10% of GDP if you take the example of Greece.5

On the other hand, consumer staples, utilities and energy will be particularly impacted by possible new environmental and energy regulations. Physical climate change and ecological risk will affect the overall supply risk and are likely to increase commodity, food and water prices dramatically.

Investment opportunities On the other hand, new types of services and products with reduced ecological footprint or offsetting footprint will likely be in demand. This creates potential investment opportunities into sectors and corporates, which contribute to themes such as smart cities, shared and circular economy, energy transition, but also waste reduction and smart materials.

Certain types of products like aluminium cans, sanitary and plastic based products can take up to hundreds of years to environmentally degrade. This will need to change.

One-off environmentally harmful products like plastic straws and cutlery are a dying breed of products that will need to be replaced through smarter materials and packaging.

Integrated ESG, SRI and Impact Investing How do our investment solutions address the potential risks and opportunities arising from ecological deficit spending and climate change?

In our mainstream investment strategies we analyse material risks and opportunities that arise from Environmental, Social and Corporate Governance (ESG). Following an Integrated ESG approach we consider trade-offs in these risk/return factors including climate and ecology in our security selection process, and actively engage with issuers in order to help them better mitigate ESG risks.

In our Socially Responsible Strategies (SRI) the quality assessment of ESG practices determines the portfolio construction putting a clear focus on “best-in-class” issuers that we think are best positioned to deliver sustainable financial returns.

Our Impact Strategies invest in projects or securities that are geared to intentional, forward-looking and measurable positive environmental and/or social impact helping investors to build or complement their lifestyle objectives into their overarching investment objectives.6, 7

Active stewardship is a key component of all our investment strategies helping corporates to develop a more sustainable business strategy adopting more ESG conscious business practices. Amongst others, engagement with corporate management can help mitigate ESG risks such as climate and ecological transition risk if we consider them material for the specific business’s future success.

1. Global Footprint Network, http://data.footprintnetwork.org/#/ (02.08.2018) 2. World Population Prospects: The 2017 Revision. New York: United Nations 3. WEF, The Global Risks Report, 13th edition (2018) 4. J. Cook, et al, “Consensus on consensus”, (13.04.2016) 5. World Bank Data, https://data.worldbank.org/ (03.08.2018) 6. Mobilizing capital towards green finance, Allianz Green Bond, July 2018 7. Life Cycle Assessment, UK Environment Agency (2011)

Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.

This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations.

This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG, licensed by FINMA (www.finma.ch) for distribution and by OAKBV (Oberaufsichtskommission berufliche Vorsorge) for asset management related to occupational pensions in Switzerland; Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association and Investment Trust Association, Japan];and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan. © 2018 Allianz Global Investors 580401

Recent Content

Sustainable ideas Sustainable ideas Sustainable ideas Sustainable ideas Land-based Aquaculture: Water infrastructure: why The impact of “green” Financing the transition: The Answer to Fish- investment is so urgently bonds funding the low-carbon Farming’s Existential needed economy  DISCOVER MORE Crisis?  DISCOVER MORE  DISCOVER MORE by Julien Bras | 07/26/2019  DISCOVER MORE 07/07/2021 07/22/2019

08/04/2021  

AllianzGI receives highest possible ESG Strategy & Governance score from PRI for third year in a row 08/01/2019   

Summary Allianz Global Investors, one of the world’s leading active investment managers, has received an ‘A+’ from the PRI Association for its overarching approach to ESG Strategy and Governance for the third year in a row. This category encompasses ESG policies, objectives, memberships and considers how the firm promotes ESG efforts internally and externally.

Key takeaways

AllianzGI awarded (A+) for its overarching approach to ESG Strategy and Governance

Receives A+ for “Listed Equity – Incorporation” for the first time

Scores underline AllianzGI’s position as a sustainable investing pioneer

 LOAD MORE

Active is: Allianz Global Investors Value. Shared.

  

© Allianz Global Investors 2021. All Rights Reserved. Privacy Policy Privacy Policy Privacy Policy Privacy Policy Privacy Policy Sitemap Sitemap Sitemap Sitemap Sitemap Contact Us Contact Us Contact Us Contact Us Contact Us FINRA BrokerCheck Business Continuity Plan Business Continuity Plan Business Continuity Plan Business Continuity Plan Business Continuity Plan Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records

Investment Products: NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED.

The information on this web site is intended for U.S. residents only. If you are a non-U.S. resident, please visit www.allianzgi.com. Unless otherwise indicated, the products and services described on this site are not available to non-U.S. residents.

Allianz Global Investors U.S. LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Allianz Global Investors Distributors LLC is a broker-dealer registered with the SEC and member of FINRA.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of AllianzGI nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement investor, contact your financial advisor or other fiduciary unrelated to AllianzGI about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances.

This site and all the information contained herein is general and/or educational in nature. Individuals should consult an investment advisor before making any investment decisions. By selecting a role and using this site you acknowledge your role and agree to the applicable terms for Sub-Advisory Investors, Offshore Investors and Institutional Investors . Contact Us Our Firm Strategies and Solutions Sustainable Investing Insights Our Firm Strategies and Solutions United States 

Sustainable Investing Insights Our Firm Products & Solutions Insights Sustainability Resources  SEARCH

Our Firm Strategies and Solutions Sustainable Investing Insights What is Sustainable Investing? Why Sustainable Investing? Why AllianzGI? Sustainable Ideas Sustainable Solutions

Anticipating the change 07/30/2019   

Summary The footprint of human consumption is continuously growing and stretching the boundaries of our Earth’s ecological capacity. While global GDP growth is broadly considered a key indicator of a healthy economic state, we may run into deep sustainability challenges if we continue “business as usual". All things being equal, we are on a path to consume DOUBLE the Earth’s annual ecological regenerative capacity by 2050. What does this generational challenge mean for society and in particular for investors?

Key takeaways

Human consumption is now estimated to be the equivalent to 1.7 times of what the Earth can naturally restore in a year and set to reach 2 times of Earth’s capacity by 2050.

To bring the size of the ecological Earth overshoot back to a sustainable level, we must rethink our lifestyles and economy.

The expected change will have long-term and far-reaching consequences across geographies and industries.

Active investment management is key to anticipate different scenarios and help prepare investors’ portfolios for the arising risks and opportunities.

Written by Dr. Steffen Hoerter, Global Head of ESG and Glenn Oliver Anderson, Global ESG Investments

Deciphering the numbers and the implications of 1.7x earth overshoot The Global Footprint Network annually computes an estimate of the worldwide aggregated ecological footprint. It shows the environmental impact that all the products and services the global population consumes, exceeds the regenerative strength of the Earth’s ecology. In particular, relating to carbon, croplands, fishing lands, forest and grazing lands. To be precise, as of 2018, we use 1.7 Earths per annum.1

Earth Overshoot = Ecological Footprint / Biocapacity

Because the Earth’s biocapacity is naturally limited and we cannot make more of it, the only way to bring back an equilibrium is by reducing our Ecological Footprint. Humans have first exceeded biocapacity in 1970. Since then the annual ecological deficit spending has steadily increased. If history is anything to go by, we know how overspending could end up. The trend is highly alarming.

Chart 1: Development of overconsumption gap estimated to 2050, Total Ecological Biocapacity and Footprint, Gha

Source: Global Footprint Network, http://data.footprintnetwork.org/#/ (02.08.2018).Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation

The overall historical trend of ecological biocapacity and ecological footprint: Ecological Deficit = Ecological Biocapacity (blue) – Ecological Footprint (Green)

How may the future numbers look like? The chart above extrapolates on how the overconsumption gap is set to widen even further from today’s levels. If everything continues as of now, by 2050, total humankind’s consumption will overshoot double the amount of Earth biocapacity. This outlook draws serious concerns on the long-term sustainability of global economic growth, the ecological balance and thus on global society which we know as of today.

There are fundamental trends that will put ever more pressure on the ecological and economical imbalance.

Global population growth is set to take off in the years to come and to levels unprecedented before. United Nations estimates there to be about 10 billion of human population by 2050, compared to the 7.5 right now.2 More people means more consumption, which means higher ecological footprint.

More emerging markets are adopting Western (over)consumption patterns. For example, Asia and especially, Africa are expected to show accelerated economic growth over the next decades 2. Rising wealth will imply higher demand for goods and services, such as, mobility, furniture and housing but also changing nutrition trends, like more consumption of meat. On top of this comes increasing urbanisation with its own negative effects on the environment. All of this will result in a more extensive use of natural resources, more carbon emissions and more waste, if consumer behavior will remain as it is today.

Top-down investment risk What does this all mean for investors? Ecological overshoot should be analysed from an investment risk and opportunity perspective. In the recent years, the World Economic Forum Global Risk Survey has been dominated by climate change.3 The Earth Overshoot framework offers additional dimensions to perceive long-term ESG investment risks quantifiably. Climate change and ecological deficit spending, of course, are deeply connected. Not only are they considered to be man-made, they also amplify each other negatively.4 Investor alertness on climate change as investment risk is rising and comparatively on higher levels.

Generally, global ecological risks should be considered a non-linear investment risk. While the graph understates the future in a linear development of earth overshoot, it is more likely that any additional stress on the ecological system creates exponential effects triggered by certain tipping-points along the path. Top-down, investors should aim to analyse what this means for long-term capital market assumptions and portfolio scenario planning, also considering unexpected extreme events due to butterfly effects.

Bottom-up investment risk From a bottom-up investment perspective, it is key to analyse which regions, industry sectors and corporates are particularly vulnerable to climate and ecological transition risk. And which opportunities arise on the horizon.

For example, agricultural and tourism sectors could be particularly exposed. On a country level, these sectors can constitute up to 10% of GDP if you take the example of Greece.5

On the other hand, consumer staples, utilities and energy will be particularly impacted by possible new environmental and energy regulations. Physical climate change and ecological risk will affect the overall supply risk and are likely to increase commodity, food and water prices dramatically.

Investment opportunities On the other hand, new types of services and products with reduced ecological footprint or offsetting footprint will likely be in demand. This creates potential investment opportunities into sectors and corporates, which contribute to themes such as smart cities, shared and circular economy, energy transition, but also waste reduction and smart materials.

Certain types of products like aluminium cans, sanitary and plastic based products can take up to hundreds of years to environmentally degrade. This will need to change.

One-off environmentally harmful products like plastic straws and cutlery are a dying breed of products that will need to be replaced through smarter materials and packaging.

Integrated ESG, SRI and Impact Investing How do our investment solutions address the potential risks and opportunities arising from ecological deficit spending and climate change?

In our mainstream investment strategies we analyse material risks and opportunities that arise from Environmental, Social and Corporate Governance (ESG). Following an Integrated ESG approach we consider trade-offs in these risk/return factors including climate and ecology in our security selection process, and actively engage with issuers in order to help them better mitigate ESG risks.

In our Socially Responsible Strategies (SRI) the quality assessment of ESG practices determines the portfolio construction putting a clear focus on “best-in-class” issuers that we think are best positioned to deliver sustainable financial returns.

Our Impact Strategies invest in projects or securities that are geared to intentional, forward-looking and measurable positive environmental and/or social impact helping investors to build or complement their lifestyle objectives into their overarching investment objectives.6, 7

Active stewardship is a key component of all our investment strategies helping corporates to develop a more sustainable business strategy adopting more ESG conscious business practices. Amongst others, engagement with corporate management can help mitigate ESG risks such as climate and ecological transition risk if we consider them material for the specific business’s future success.

1. Global Footprint Network, http://data.footprintnetwork.org/#/ (02.08.2018) 2. World Population Prospects: The 2017 Revision. New York: United Nations 3. WEF, The Global Risks Report, 13th edition (2018) 4. J. Cook, et al, “Consensus on consensus”, (13.04.2016) 5. World Bank Data, https://data.worldbank.org/ (03.08.2018) 6. Mobilizing capital towards green finance, Allianz Green Bond, July 2018 7. Life Cycle Assessment, UK Environment Agency (2011)

Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.

This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations.

This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG, licensed by FINMA (www.finma.ch) for distribution and by OAKBV (Oberaufsichtskommission berufliche Vorsorge) for asset management related to occupational pensions in Switzerland; Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association and Investment Trust Association, Japan];and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan. © 2018 Allianz Global Investors 580401

Recent Content

Sustainable ideas Sustainable ideas Sustainable ideas Sustainable ideas Land-based Aquaculture: Water infrastructure: why The impact of “green” Financing the transition: The Answer to Fish- investment is so urgently bonds funding the low-carbon Farming’s Existential needed economy  DISCOVER MORE Crisis?  DISCOVER MORE  DISCOVER MORE by Julien Bras | 07/26/2019  DISCOVER MORE 07/07/2021 07/22/2019

08/04/2021  

AllianzGI receives highest possible ESG Strategy & Governance score from PRI for third year in a row 08/01/2019   

Summary Allianz Global Investors, one of the world’s leading active investment managers, has received an ‘A+’ from the PRI Association for its overarching approach to ESG Strategy and Governance for the third year in a row. This category encompasses ESG policies, objectives, memberships and considers how the firm promotes ESG efforts internally and externally.

Key takeaways

AllianzGI awarded (A+) for its overarching approach to ESG Strategy and Governance

Receives A+ for “Listed Equity – Incorporation” for the first time

Scores underline AllianzGI’s position as a sustainable investing pioneer

 LOAD MORE

Active is: Allianz Global Investors Value. Shared.

  

© Allianz Global Investors 2021. All Rights Reserved. Privacy Policy Privacy Policy Privacy Policy Privacy Policy Privacy Policy Sitemap Sitemap Sitemap Sitemap Sitemap Contact Us Contact Us Contact Us Contact Us Contact Us FINRA BrokerCheck Business Continuity Plan Business Continuity Plan Business Continuity Plan Business Continuity Plan Business Continuity Plan Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records

Investment Products: NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED.

The information on this web site is intended for U.S. residents only. If you are a non-U.S. resident, please visit www.allianzgi.com. Unless otherwise indicated, the products and services described on this site are not available to non-U.S. residents.

Allianz Global Investors U.S. LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Allianz Global Investors Distributors LLC is a broker-dealer registered with the SEC and member of FINRA.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of AllianzGI nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement investor, contact your financial advisor or other fiduciary unrelated to AllianzGI about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances.

This site and all the information contained herein is general and/or educational in nature. Individuals should consult an investment advisor before making any investment decisions. By selecting a role and using this site you acknowledge your role and agree to the applicable terms for Sub-Advisory Investors, Offshore Investors and Institutional Investors . Contact Us Our Firm Strategies and Solutions Sustainable Investing Insights Our Firm Strategies and Solutions United States 

Sustainable Investing Insights Our Firm Products & Solutions Insights Sustainability Resources  SEARCH

Our Firm Strategies and Solutions Sustainable Investing Insights What is Sustainable Investing? Why Sustainable Investing? Why AllianzGI? Sustainable Ideas Sustainable Solutions

Anticipating the change 07/30/2019   

Summary The footprint of human consumption is continuously growing and stretching the boundaries of our Earth’s ecological capacity. While global GDP growth is broadly considered a key indicator of a healthy economic state, we may run into deep sustainability challenges if we continue “business as usual". All things being equal, we are on a path to consume DOUBLE the Earth’s annual ecological regenerative capacity by 2050. What does this generational challenge mean for society and in particular for investors?

Key takeaways

Human consumption is now estimated to be the equivalent to 1.7 times of what the Earth can naturally restore in a year and set to reach 2 times of Earth’s capacity by 2050.

To bring the size of the ecological Earth overshoot back to a sustainable level, we must rethink our lifestyles and economy.

The expected change will have long-term and far-reaching consequences across geographies and industries.

Active investment management is key to anticipate different scenarios and help prepare investors’ portfolios for the arising risks and opportunities.

Written by Dr. Steffen Hoerter, Global Head of ESG and Glenn Oliver Anderson, Global ESG Investments

Deciphering the numbers and the implications of 1.7x earth overshoot The Global Footprint Network annually computes an estimate of the worldwide aggregated ecological footprint. It shows the environmental impact that all the products and services the global population consumes, exceeds the regenerative strength of the Earth’s ecology. In particular, relating to carbon, croplands, fishing lands, forest and grazing lands. To be precise, as of 2018, we use 1.7 Earths per annum.1

Earth Overshoot = Ecological Footprint / Biocapacity

Because the Earth’s biocapacity is naturally limited and we cannot make more of it, the only way to bring back an equilibrium is by reducing our Ecological Footprint. Humans have first exceeded biocapacity in 1970. Since then the annual ecological deficit spending has steadily increased. If history is anything to go by, we know how overspending could end up. The trend is highly alarming.

Chart 1: Development of overconsumption gap estimated to 2050, Total Ecological Biocapacity and Footprint, Gha

Source: Global Footprint Network, http://data.footprintnetwork.org/#/ (02.08.2018).Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation

The overall historical trend of ecological biocapacity and ecological footprint: Ecological Deficit = Ecological Biocapacity (blue) – Ecological Footprint (Green)

How may the future numbers look like? The chart above extrapolates on how the overconsumption gap is set to widen even further from today’s levels. If everything continues as of now, by 2050, total humankind’s consumption will overshoot double the amount of Earth biocapacity. This outlook draws serious concerns on the long-term sustainability of global economic growth, the ecological balance and thus on global society which we know as of today.

There are fundamental trends that will put ever more pressure on the ecological and economical imbalance.

Global population growth is set to take off in the years to come and to levels unprecedented before. United Nations estimates there to be about 10 billion of human population by 2050, compared to the 7.5 right now.2 More people means more consumption, which means higher ecological footprint.

More emerging markets are adopting Western (over)consumption patterns. For example, Asia and especially, Africa are expected to show accelerated economic growth over the next decades 2. Rising wealth will imply higher demand for goods and services, such as, mobility, furniture and housing but also changing nutrition trends, like more consumption of meat. On top of this comes increasing urbanisation with its own negative effects on the environment. All of this will result in a more extensive use of natural resources, more carbon emissions and more waste, if consumer behavior will remain as it is today.

Top-down investment risk What does this all mean for investors? Ecological overshoot should be analysed from an investment risk and opportunity perspective. In the recent years, the World Economic Forum Global Risk Survey has been dominated by climate change.3 The Earth Overshoot framework offers additional dimensions to perceive long-term ESG investment risks quantifiably. Climate change and ecological deficit spending, of course, are deeply connected. Not only are they considered to be man-made, they also amplify each other negatively.4 Investor alertness on climate change as investment risk is rising and comparatively on higher levels.

Generally, global ecological risks should be considered a non-linear investment risk. While the graph understates the future in a linear development of earth overshoot, it is more likely that any additional stress on the ecological system creates exponential effects triggered by certain tipping-points along the path. Top-down, investors should aim to analyse what this means for long-term capital market assumptions and portfolio scenario planning, also considering unexpected extreme events due to butterfly effects.

Bottom-up investment risk From a bottom-up investment perspective, it is key to analyse which regions, industry sectors and corporates are particularly vulnerable to climate and ecological transition risk. And which opportunities arise on the horizon.

For example, agricultural and tourism sectors could be particularly exposed. On a country level, these sectors can constitute up to 10% of GDP if you take the example of Greece.5

On the other hand, consumer staples, utilities and energy will be particularly impacted by possible new environmental and energy regulations. Physical climate change and ecological risk will affect the overall supply risk and are likely to increase commodity, food and water prices dramatically.

Investment opportunities On the other hand, new types of services and products with reduced ecological footprint or offsetting footprint will likely be in demand. This creates potential investment opportunities into sectors and corporates, which contribute to themes such as smart cities, shared and circular economy, energy transition, but also waste reduction and smart materials.

Certain types of products like aluminium cans, sanitary and plastic based products can take up to hundreds of years to environmentally degrade. This will need to change.

One-off environmentally harmful products like plastic straws and cutlery are a dying breed of products that will need to be replaced through smarter materials and packaging.

Integrated ESG, SRI and Impact Investing How do our investment solutions address the potential risks and opportunities arising from ecological deficit spending and climate change?

In our mainstream investment strategies we analyse material risks and opportunities that arise from Environmental, Social and Corporate Governance (ESG). Following an Integrated ESG approach we consider trade-offs in these risk/return factors including climate and ecology in our security selection process, and actively engage with issuers in order to help them better mitigate ESG risks.

In our Socially Responsible Strategies (SRI) the quality assessment of ESG practices determines the portfolio construction putting a clear focus on “best-in-class” issuers that we think are best positioned to deliver sustainable financial returns.

Our Impact Strategies invest in projects or securities that are geared to intentional, forward-looking and measurable positive environmental and/or social impact helping investors to build or complement their lifestyle objectives into their overarching investment objectives.6, 7

Active stewardship is a key component of all our investment strategies helping corporates to develop a more sustainable business strategy adopting more ESG conscious business practices. Amongst others, engagement with corporate management can help mitigate ESG risks such as climate and ecological transition risk if we consider them material for the specific business’s future success.

1. Global Footprint Network, http://data.footprintnetwork.org/#/ (02.08.2018) 2. World Population Prospects: The 2017 Revision. New York: United Nations 3. WEF, The Global Risks Report, 13th edition (2018) 4. J. Cook, et al, “Consensus on consensus”, (13.04.2016) 5. World Bank Data, https://data.worldbank.org/ (03.08.2018) 6. Mobilizing capital towards green finance, Allianz Green Bond, July 2018 7. Life Cycle Assessment, UK Environment Agency (2011)

Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.

This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations.

This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG, licensed by FINMA (www.finma.ch) for distribution and by OAKBV (Oberaufsichtskommission berufliche Vorsorge) for asset management related to occupational pensions in Switzerland; Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association and Investment Trust Association, Japan];and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan. © 2018 Allianz Global Investors 580401

Recent Content

Sustainable ideas Sustainable ideas Sustainable ideas Sustainable ideas Land-based Aquaculture: Water infrastructure: why The impact of “green” Financing the transition: The Answer to Fish- investment is so urgently bonds funding the low-carbon Farming’s Existential needed economy  DISCOVER MORE Crisis?  DISCOVER MORE  DISCOVER MORE by Julien Bras | 07/26/2019  DISCOVER MORE 07/07/2021 07/22/2019

08/04/2021  

AllianzGI receives highest possible ESG Strategy & Governance score from PRI for third year in a row 08/01/2019   

Summary Allianz Global Investors, one of the world’s leading active investment managers, has received an ‘A+’ from the PRI Association for its overarching approach to ESG Strategy and Governance for the third year in a row. This category encompasses ESG policies, objectives, memberships and considers how the firm promotes ESG efforts internally and externally.

Key takeaways

AllianzGI awarded (A+) for its overarching approach to ESG Strategy and Governance

Receives A+ for “Listed Equity – Incorporation” for the first time

Scores underline AllianzGI’s position as a sustainable investing pioneer

 LOAD MORE

Active is: Allianz Global Investors Value. Shared.

  

© Allianz Global Investors 2021. All Rights Reserved. Privacy Policy Privacy Policy Privacy Policy Privacy Policy Privacy Policy Sitemap Sitemap Sitemap Sitemap Sitemap Contact Us Contact Us Contact Us Contact Us Contact Us FINRA BrokerCheck Business Continuity Plan Business Continuity Plan Business Continuity Plan Business Continuity Plan Business Continuity Plan Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records

Investment Products: NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED.

The information on this web site is intended for U.S. residents only. If you are a non-U.S. resident, please visit www.allianzgi.com. Unless otherwise indicated, the products and services described on this site are not available to non-U.S. residents.

Allianz Global Investors U.S. LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Allianz Global Investors Distributors LLC is a broker-dealer registered with the SEC and member of FINRA.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of AllianzGI nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement investor, contact your financial advisor or other fiduciary unrelated to AllianzGI about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances.

This site and all the information contained herein is general and/or educational in nature. Individuals should consult an investment advisor before making any investment decisions. By selecting a role and using this site you acknowledge your role and agree to the applicable terms for Sub-Advisory Investors, Offshore Investors and Institutional Investors . Contact Us Our Firm Strategies and Solutions Sustainable Investing Insights Our Firm Strategies and Solutions United States 

Sustainable Investing Insights Our Firm Products & Solutions Insights Sustainability Resources  SEARCH

Our Firm Strategies and Solutions Sustainable Investing Insights What is Sustainable Investing? Why Sustainable Investing? Why AllianzGI? Sustainable Ideas Sustainable Solutions

Anticipating the change 07/30/2019   

Summary The footprint of human consumption is continuously growing and stretching the boundaries of our Earth’s ecological capacity. While global GDP growth is broadly considered a key indicator of a healthy economic state, we may run into deep sustainability challenges if we continue “business as usual". All things being equal, we are on a path to consume DOUBLE the Earth’s annual ecological regenerative capacity by 2050. What does this generational challenge mean for society and in particular for investors?

Key takeaways

Human consumption is now estimated to be the equivalent to 1.7 times of what the Earth can naturally restore in a year and set to reach 2 times of Earth’s capacity by 2050.

To bring the size of the ecological Earth overshoot back to a sustainable level, we must rethink our lifestyles and economy.

The expected change will have long-term and far-reaching consequences across geographies and industries.

Active investment management is key to anticipate different scenarios and help prepare investors’ portfolios for the arising risks and opportunities.

Written by Dr. Steffen Hoerter, Global Head of ESG and Glenn Oliver Anderson, Global ESG Investments

Deciphering the numbers and the implications of 1.7x earth overshoot The Global Footprint Network annually computes an estimate of the worldwide aggregated ecological footprint. It shows the environmental impact that all the products and services the global population consumes, exceeds the regenerative strength of the Earth’s ecology. In particular, relating to carbon, croplands, fishing lands, forest and grazing lands. To be precise, as of 2018, we use 1.7 Earths per annum.1

Earth Overshoot = Ecological Footprint / Biocapacity

Because the Earth’s biocapacity is naturally limited and we cannot make more of it, the only way to bring back an equilibrium is by reducing our Ecological Footprint. Humans have first exceeded biocapacity in 1970. Since then the annual ecological deficit spending has steadily increased. If history is anything to go by, we know how overspending could end up. The trend is highly alarming.

Chart 1: Development of overconsumption gap estimated to 2050, Total Ecological Biocapacity and Footprint, Gha

Source: Global Footprint Network, http://data.footprintnetwork.org/#/ (02.08.2018).Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation

The overall historical trend of ecological biocapacity and ecological footprint: Ecological Deficit = Ecological Biocapacity (blue) – Ecological Footprint (Green)

How may the future numbers look like? The chart above extrapolates on how the overconsumption gap is set to widen even further from today’s levels. If everything continues as of now, by 2050, total humankind’s consumption will overshoot double the amount of Earth biocapacity. This outlook draws serious concerns on the long-term sustainability of global economic growth, the ecological balance and thus on global society which we know as of today.

There are fundamental trends that will put ever more pressure on the ecological and economical imbalance.

Global population growth is set to take off in the years to come and to levels unprecedented before. United Nations estimates there to be about 10 billion of human population by 2050, compared to the 7.5 right now.2 More people means more consumption, which means higher ecological footprint.

More emerging markets are adopting Western (over)consumption patterns. For example, Asia and especially, Africa are expected to show accelerated economic growth over the next decades 2. Rising wealth will imply higher demand for goods and services, such as, mobility, furniture and housing but also changing nutrition trends, like more consumption of meat. On top of this comes increasing urbanisation with its own negative effects on the environment. All of this will result in a more extensive use of natural resources, more carbon emissions and more waste, if consumer behavior will remain as it is today.

Top-down investment risk What does this all mean for investors? Ecological overshoot should be analysed from an investment risk and opportunity perspective. In the recent years, the World Economic Forum Global Risk Survey has been dominated by climate change.3 The Earth Overshoot framework offers additional dimensions to perceive long-term ESG investment risks quantifiably. Climate change and ecological deficit spending, of course, are deeply connected. Not only are they considered to be man-made, they also amplify each other negatively.4 Investor alertness on climate change as investment risk is rising and comparatively on higher levels.

Generally, global ecological risks should be considered a non-linear investment risk. While the graph understates the future in a linear development of earth overshoot, it is more likely that any additional stress on the ecological system creates exponential effects triggered by certain tipping-points along the path. Top-down, investors should aim to analyse what this means for long-term capital market assumptions and portfolio scenario planning, also considering unexpected extreme events due to butterfly effects.

Bottom-up investment risk From a bottom-up investment perspective, it is key to analyse which regions, industry sectors and corporates are particularly vulnerable to climate and ecological transition risk. And which opportunities arise on the horizon.

For example, agricultural and tourism sectors could be particularly exposed. On a country level, these sectors can constitute up to 10% of GDP if you take the example of Greece.5

On the other hand, consumer staples, utilities and energy will be particularly impacted by possible new environmental and energy regulations. Physical climate change and ecological risk will affect the overall supply risk and are likely to increase commodity, food and water prices dramatically.

Investment opportunities On the other hand, new types of services and products with reduced ecological footprint or offsetting footprint will likely be in demand. This creates potential investment opportunities into sectors and corporates, which contribute to themes such as smart cities, shared and circular economy, energy transition, but also waste reduction and smart materials.

Certain types of products like aluminium cans, sanitary and plastic based products can take up to hundreds of years to environmentally degrade. This will need to change.

One-off environmentally harmful products like plastic straws and cutlery are a dying breed of products that will need to be replaced through smarter materials and packaging.

Integrated ESG, SRI and Impact Investing How do our investment solutions address the potential risks and opportunities arising from ecological deficit spending and climate change?

In our mainstream investment strategies we analyse material risks and opportunities that arise from Environmental, Social and Corporate Governance (ESG). Following an Integrated ESG approach we consider trade-offs in these risk/return factors including climate and ecology in our security selection process, and actively engage with issuers in order to help them better mitigate ESG risks.

In our Socially Responsible Strategies (SRI) the quality assessment of ESG practices determines the portfolio construction putting a clear focus on “best-in-class” issuers that we think are best positioned to deliver sustainable financial returns.

Our Impact Strategies invest in projects or securities that are geared to intentional, forward-looking and measurable positive environmental and/or social impact helping investors to build or complement their lifestyle objectives into their overarching investment objectives.6, 7

Active stewardship is a key component of all our investment strategies helping corporates to develop a more sustainable business strategy adopting more ESG conscious business practices. Amongst others, engagement with corporate management can help mitigate ESG risks such as climate and ecological transition risk if we consider them material for the specific business’s future success.

1. Global Footprint Network, http://data.footprintnetwork.org/#/ (02.08.2018) 2. World Population Prospects: The 2017 Revision. New York: United Nations 3. WEF, The Global Risks Report, 13th edition (2018) 4. J. Cook, et al, “Consensus on consensus”, (13.04.2016) 5. World Bank Data, https://data.worldbank.org/ (03.08.2018) 6. Mobilizing capital towards green finance, Allianz Green Bond, July 2018 7. Life Cycle Assessment, UK Environment Agency (2011)

Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.

This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations.

This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG, licensed by FINMA (www.finma.ch) for distribution and by OAKBV (Oberaufsichtskommission berufliche Vorsorge) for asset management related to occupational pensions in Switzerland; Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association and Investment Trust Association, Japan];and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan. © 2018 Allianz Global Investors 580401

Recent Content

Sustainable ideas Sustainable ideas Sustainable ideas Sustainable ideas Land-based Aquaculture: Water infrastructure: why The impact of “green” Financing the transition: The Answer to Fish- investment is so urgently bonds funding the low-carbon Farming’s Existential needed economy  DISCOVER MORE Crisis?  DISCOVER MORE  DISCOVER MORE by Julien Bras | 07/26/2019  DISCOVER MORE 07/07/2021 07/22/2019

08/04/2021  

AllianzGI receives highest possible ESG Strategy & Governance score from PRI for third year in a row 08/01/2019   

Summary Allianz Global Investors, one of the world’s leading active investment managers, has received an ‘A+’ from the PRI Association for its overarching approach to ESG Strategy and Governance for the third year in a row. This category encompasses ESG policies, objectives, memberships and considers how the firm promotes ESG efforts internally and externally.

Key takeaways

AllianzGI awarded (A+) for its overarching approach to ESG Strategy and Governance

Receives A+ for “Listed Equity – Incorporation” for the first time

Scores underline AllianzGI’s position as a sustainable investing pioneer

 LOAD MORE

Active is: Allianz Global Investors Value. Shared.

  

© Allianz Global Investors 2021. All Rights Reserved. Privacy Policy Privacy Policy Privacy Policy Privacy Policy Privacy Policy Sitemap Sitemap Sitemap Sitemap Sitemap Contact Us Contact Us Contact Us Contact Us Contact Us FINRA BrokerCheck Business Continuity Plan Business Continuity Plan Business Continuity Plan Business Continuity Plan Business Continuity Plan Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records Proxy Policies & Voting Records

Investment Products: NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED.

The information on this web site is intended for U.S. residents only. If you are a non-U.S. resident, please visit www.allianzgi.com. Unless otherwise indicated, the products and services described on this site are not available to non-U.S. residents.

Allianz Global Investors U.S. LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Allianz Global Investors Distributors LLC is a broker-dealer registered with the SEC and member of FINRA.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of AllianzGI nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement investor, contact your financial advisor or other fiduciary unrelated to AllianzGI about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances.

This site and all the information contained herein is general and/or educational in nature. Individuals should consult an investment advisor before making any investment decisions. By selecting a role and using this site you acknowledge your role and agree to the applicable terms for Sub-Advisory Investors, Offshore Investors and Institutional Investors .