Megatrends and their impact on the global investment landscape

Permacrisis, defined as “an extended period of instability and insecurity,” was Word of the Year in 2022, as chosen by the Collins English Dictionary. And the year ahead may be just as turbulent. Indeed, our world has been buffeted relentlessly by one crisis after another, arguably starting well before the emergence of the COVID-19 pandemic.

This extended period of instability and insecurity is hugely challenging for business leaders. The resilience of their companies has a direct impact on all their stakeholders, from employees and local communities to customers, partners and shareholders. It is crucial that companies stay agile as their leaders respond to the severe economic and market volatility caused by the permacrisis, whether that's supply chain disruptions, soaring inflation, tighter global financial conditions, recessionary pressures, concerns over energy security or the global fragmentation of trade.

In 2023, leaders in private and public sectors will face an even bigger pressure to make a choice: will they be reactive and focus on coping with the day-to-day volatility or will they look beyond and focus on the megatrends shaping our world?

The United Nations Economist Network identified five megatrends affecting economic, social and environmental outcomes. There is, of course, climate change, but there are also big demographic shifts, especially the ageing of societies around the world, urbanisation, digital and disruptive technologies and inequality. These megatrends are defining the future and today’s permacrisis is probably the symptom of how they are playing out.

Short-term investors can be opportunistic, but long-term investors have to be more strategic, particularly in the face of these megatrends. Mubadala develops its strategy based on a study of megatrends and other global dynamics. Analysis helps us prioritise our investments to achieve our mandate of delivering sustainable long-term returns to our shareholder, the Government of Abu Dhabi. To help validate market perceptions, remain well-informed and ensure a resilient positioning that benefits from these megatrends and turns them into opportunities, Mubadala recently commissioned research from Bloomberg Media into these megatrends.

Climate change represents the greatest risk to the well-being of the world, outstripping all others. It impacts health, degrades the environment and harms business performance, underlining the case for greater levels of investment in the energy transition to low-carbon economies. Our study shows the climate is also seen by all groups polled – investors, Millennials and Gen Z - as the biggest opportunity for companies to change the world for the better.

Mubadala was established to help identify and invest in promising sectors and geographies, including energy and healthcare, transportation and advanced technology. Mubadala invested early in the energy transition, establishing renewable energy company, Masdar, in 2006. Masdar now operates in more than 30 countries developing, commercialising and deploying cutting-edge renewable energy solutions. The company has aspirations to provide 100GW of renewable power by 2030.

Digital technologies were rated by survey respondents as the other megatrend that will have the most relevance to investors and businesses. The power of technology to effect positive lasting change cannot be overestimated. Across the world, technology acts as an enabler, supporting people, businesses and society to develop solutions to tackle environmental concerns and the battles against food scarcity, poor sanitation, lack of access to education, poverty and other health and social issues.

Our study shows that companies that factor megatrends into their business strategies will benefit from improved overall performance. Indeed, respondents expect businesses to play a big role in responding to megatrends. India and the UAE feel this most strongly at 95% and 91% respectively, followed by the US (85%).

Sovereign investors, with their time horizons of five to ten years or even multiple generations, are well placed to focus their capital deployments to align with megatrends. Organizations, such as Mubadala, have the institutional patience to ride out the years of permacrisis. But to do so most effectively they must act collaboratively.

This is why Mubadala is embracing a wider role as a convener of the global financial community, not least through our participation in the One Planet Sovereign Wealth Funds network. By partnering with likeminded leaders, we hope to help find solutions to the world’s biggest challenges, working together to unlock obstacles and facilitate investment in line with the megatrends.

In October, Mubadala – along with Abu Dhabi Investment Authority – hosted the annual OPSWF CEO Summit in Abu Dhabi. This represented the culmination of 12 months of solid work and negotiations to drive progress in renewable energy investments in emerging markets, climate data disclosures in private markets and green hydrogen. Together, OPSWF sovereign investors, asset managers and private investment firms represent $37 trillion in assets under management.

As businesses, we are instrumental at scaling investments and technologies to effect change. We have leading thinkers, creators and innovators among our people who want to contribute to positive change. We also have a willing, able and open community of grassroots organizations, startups, local groups and government agencies with whom we can partner to build solutions.

Megatrends have always been important to understand our rapidly and ever-changing world. They create opportunities and challenges and shape our present and future. Business has a key role in building a better tomorrow. The fragmentation we see around us today and its effects remind us that through cooperation we can achieve more.