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For Vincent Juvyns, policies to fight climate change should support economic growth 

Marc Fassone: Should we be afraid of inflation?

Vincent Juvyns: Objectively, no. We've been complaining about not having it for 10 years, let's not start now. The real question is whether we will have too much inflation. At this point we do not believe so. Today it is clear that we all want to be in the same place at the same time to consume the same goods and services when, because of the pandemic, there is a disruption in the supply chains. Hence the surge in inflation.

On the other hand, if there was a lot of budgetary effort made, it was more to manage the emergency than to invest in the world of tomorrow. It may come with the infrastructure stimulus plan in the US or the European green deal, but at the moment the conditions have not been met to create this growth and  higher inflation in coming years.

Objectively speaking, I really think that we will see temporary wage and price increases, but I find it hard to see anything sustainable now.

Our research shows that the global inflation outlook is being increased by a quarter to 10-15 years for most countries, in the order of 0.1% in most cases. And this has less to do with covid than it does with climate policies which will make the cost per manufacturing goods and services, including the cost of carbon, increase significantly in the coming years.

Let’s be glad that we have a little more inflation now than we had before.

Is there not a risk that central banks will be overwhelmed by inflation and will have to put their feet on the brakes on their accommodative policies?

It’s hard to be sure, because we’re living in a new era. At most, it’s speculation. Personally, I don’t think there will be any risk of hyperinflation in the near future.

Certainly, we see that in the Horeca sector, throughout Europe as in the US, it is difficult to rehire staff. Now, all these people have not become computer scientists, plumbers or whatever. There has been no significant job creation in other sectors. At some point, things will normalise.

If you look at world trade, it worked pretty well before the crisis. It has been very resilient. We did have containers that were not all in the right place at the right time, but things are improving. Two to three quarters will be enough to restore this well-oiled logistic. 

We will certainly also see a re-onshoring of certain activities. For example, in the field of semiconductors, an American and European priority. But finally, it is not in Europe that the iPhone 13 will be manufactured! We must be realistic. Talking about deglobalisation is a bit pointless, it is not a movement that will support inflation.

In the end, all the factors that weighed on inflation before covid still exist: the aging of the population, impact of technology, low union affiliation, etc.

So I’m having a hard time seeing all the elements that support inflation right now as being sustainable. 

Is there not, however, a desire for inflation on the part of policies, if only to absorb the deficits that have widened? 

More than inflation, I think the royal path to debt reduction is growth. Inflation is a component of it.

But I think the policy vision is that now that we realise that we have accumulated a lot of debt from covid without planting the seeds of future growth, it’s not to stop too soon. As for the US, there's an infrastructure plan, and in Europe a Green Deal, to create the conditions for future growth that will pay down the debt. And that is now the bet of public authorities. It’s a political risk, but given the range of possibilities, it’s the least bad or the best solution.

In this context, are sustainable development policies seen as growth accelerators or brakes?

For me, it’s an accelerator. I had the impression that there was a lack of unifying projects at the international level to channel these investment forces that I am talking about. Today, humanity faces an unprecedented collective challenge that generates great need for investment and reform. This great common challenge must first of all bring us together and mobilise public and private capital.

That’s pretty positive from a growth perspective for the future. For investors, there are always risks, opportunities and uncertainties, but for me, I see more opportunities than risks in this movement. The risk is known: it’s the end of life as we know it for the time being. There isn’t any alternative: all solutions for fighting climate change will be growth generators. 

Do we now have the financial and technological means to meet this challenge?

I think that all the elements are on the table. The key to achieving a sensible climate policy is the price of carbon. It’s the stick. The carrot is the combination of fiscal stimulus and tax incentives. To isolate housing, for example. But to be sure to induce the right behaviors, we also need the stick: making carbon emissions more expensive. Putting a price on carbon at its necessary level--experts are talking about a range of $40 to $80 a tonne--could create an inflationary shock, but it could be very temporary. Especially since these policies will generate low inflationary growth. As for the technologies, they exist. With a caveat on renewable energy storage. The range of possibilities is enormous for all trades and sectors. Accompanying this movement is very exciting for me. 

How should investors position themselves in this context?

Climate change policies are a certainty, a reality. The investor must realise that they have an interest in being in tune with these major objectives. Objectives already taken into account by asset managers through the adoption of ESG criteria. But today, we are focusing more on the environment.

There are different ways to position yourself. There is a maximalist approach in selecting only those companies that are part of the solution--which is not simple as in the case of conventional energy companies that are part of the problem, but also offer solutions by reorienting. Or companies that manufacture solar panels while having a very poor carbon footprint--and a minimalist, cross-cutting approach that recognises that the price of carbon will rise everywhere, and that all those who produce goods and services will have an interest in reducing this cost.

What we are interested in is the company that will use the least amount of carbon for its products and services.

We already see on our quantitative indices that reducing the carbon footprint of one’s portfolio means better returns and lower volatility. I think that’s already the primary objective of investors. And in the fund factsheets, we’re starting to see CO2 emissions. I think that’s a good thing.

For investors, one area of focus will be to monitor the carbon evolution of their investments and, beyond financial parameters, pay close attention to extra-financial parameters. 

This article was originally published in French on Paperjam and has been translated and edited for Delano.