Sustainable equities: maintain focus on long term secular growth

Hamish Chamberlayne, Head of Global Sustainable Equities, explains why investors should not be wrong-footed amid increased volatility in 2022.

Key takeaways:

  • We anticipate heightened market volatility in 2022 as the global economy contends with inflationary pressures associated with the COVID-19 pandemic.
  • We believe that inflationary pressures will benefit long term secular growth trends associated with efficiency, clean technology and renewable energy.
  • The outcomes of COP26 should further accelerate the transition to a low carbon economy and we are excited by the range of opportunities in 2022 and beyond.

As was the case for much of 2021, we expect the 2022 market environment to be characterised by ongoing tensions between secular growth companies and the post-pandemic ‘reopening’ trade. To our mind, we believe that the powerful secular growth trends of digitalisation and electrification should dominate the market narrative over the next decade as decarbonisation of the global economy gathers pace. We expect heightened volatility, however, as the global economy contends with inflationary pressures stemming from the dislocations caused by the COVID-19 pandemic.

Inflation acts a tailwind for efficient businesses

When we consider the opportunities to sustainable equities in this environment, it is very important to remember that inflation often contains the seeds of its own destruction; higher prices incentivise businesses to invest in efficiency, substitution and technology. This can often make the economics of clean technologies, electric vehicles and renewable energy more attractive. We believe, therefore, that an inflationary backdrop will act as a tailwind to many businesses. In addition, companies with strong franchises which offer a compelling value proposition around their goods and services are likely to succeed; because these types of companies should have pricing power which enables them to pass on higher input costs.

Do not be wrong-footed amid the volatility

It is important to remember that inflation is not synchronised. Rather, it tends to ripple through markets, creating volatility as different companies are impacted at different times and then recalibrate themselves. As such, we expect to see market gyrations between value and growth from quarter to quarter as sectors are hit by inflation at different times. In the midst of this volatility, we urge investors not to be wrong-footed by the inevitable and short-term flip-flopping of growth versus value. In our view, the long-term secular trends associated with the transformation to a more sustainable global economy will be the most important determinant of investment returns.

So, we believe a period of inflation may ultimately be beneficial to growth, as it makes the economics of sustainable businesses more compelling and accelerates the level of investment into the low carbon energy transition.

Alignment for a sustainable global economy is accelerating

Keeping to the theme of the low carbon transition, we take a positive view on the outcomes of the recent COP26. The climate pact has secured greater ambition in emissions reductions from key countries including India and China. Importantly, all countries have agreed to revisit their nationally determined contributions (NDCs) annually rather than every five years. With countries held to greater account, we expect the process of emissions reduction to speed up. In fact, we anticipate that the transition to a low carbon economy may be faster than individual national net-zero timelines as innovation and clean technology cost reductions enable governments to press harder on the policy accelerator.

From an investment perspective, we are most interested in the direction and rate of travel than we are of the snapshot view, and COP26 has clearly signalled global alignment on the necessity of accelerating decarbonisation. In 2021 alone we saw significant progress in the low carbon transition, with electric vehicle (EV) sales markedly higher in the first half of 2021 versus 2020 (chart 1), highlighting the quiet rate of progress that we are making towards a decarbonised economy. We do not anticipate this trend slowing, with higher oil prices and government initiatives further boosting demand for EVs. In addition to the above, COP26 has seen great progress on carbon trading markets and transparency for the accounting and reporting of targets and emissions, and commitments to finance developing countries’ transitions. These developments may be a powerful incentive for change.


Chart 1: Electric vehicles sales across major regions in 2020 vs 2021

Source: The global electric vehicle market overview in 2022: statistics & forecasts, Virta, data as at end June 2021. Electric vehicles comprising of Battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs).

So, as we look to 2022 and beyond, we believe a focus on digitalisation, electrification, and decarbonisation trends remains essential, as they become the driving features of our global economy. Identifying the companies that are aligned with long-duration sustainable development themes, and that are playing a positive role in the transformation of the global economy towards a more sustainable footing, is critical. We are as excited as ever by the range of investment opportunities we see in 2022 and beyond.


Important information

The views presented are as of the date published. They are for information purposes only and should not be used or construed as investment, legal or tax advice or as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. Nothing in this material shall be deemed to be a direct or indirect provision of investment management services specific to any client requirements. Opinions and examples are meant as an illustration of broader themes, are not an indication of trading intent, are subject to change and may not reflect the views of others in the organization. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. No forecasts can be guaranteed and there is no guarantee that the information supplied is complete or timely, nor are there any warranties with regard to the results obtained from its use. Janus Henderson Investors is the source of data unless otherwise indicated, and has reasonable belief to rely on information and data sourced from third parties. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.

Not all products or services are available in all jurisdictions. This material or information contained in it may be restricted by law, may not be reproduced or referred to without express written permission or used in any jurisdiction or circumstance in which its use would be unlawful. Janus Henderson is not responsible for any unlawful distribution of this material to any third parties, in whole or in part. The contents of this material have not been approved or endorsed by any regulatory agency.

Janus Henderson Investors is the name under which investment products and services are provided by the entities identified in the following jurisdictions: (a) Europe by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors  Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and  Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial  Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

Janus Henderson, Janus, Henderson, Knowledge Shared and Knowledge Labs are trademarks of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc.


The information, materials or opinions contained on this website are for general information purposes only and are not intended to constitute legal or other professional advice and should not be relied on or treated as a substitute for specific advice of any kind.

We make no warranties, representations or undertakings about any of the content of this website; including without limitation any representations as to the quality, accuracy, completeness or fitness of any particular purpose of such content, or in relation to any content of articles provided by third parties and displayed on this website or any website referred to or accessed by hyperlinks through this website.

Although we make reasonable efforts to update the information on this site, we make no representations, warranties or guarantees whether express or implied that the content on our site is accurate complete or up to date.

Be the first to hear news and insights from Embark Platform

Sign up to receive updates from Embark Group and its businesses. You can unsubscribe at any time using the link at the bottom of our emails, and we promise never to pass your details to a third party. Please consult our Privacy Notice for more information.