Rapid urbanisation is a megatrend that impacts the economy, society, and the environment. Urbanisation is essentially the population shift from rural to urban areas, and the way civilisations adjust to this. The world is urbanising at a startling pace, and this pace of migration is making areas struggle under the pressure of too many people and too inadequate infrastructure. Therefore, unless solutions are identified to the problems of inadequate housing, decaying infrastructure, diminishing water sources, inequitable transportation, and inefficient refuse and pollution control systems, the world could be faced with an ‘Urban Nightmare’. Such a scenario may easily lead to mass social unrest and violence. Rapidly growing urban populations cause increased competition over scarce urban resources, which fuels grievances that are then expressed through protests that can violently escalate.
Current urbanisation trends have demonstrated that rapid urbanisation can lead to unsustainable ways of living. Developing urban resilience and urban sustainability in response to increased urbanisation is therefore a United Nations Sustainable Development Goal, specifically, goal 11 ‘‘sustainable cities and communities’’. As urbanisation generates vast social, economic, and environmental challenges and risks, it also provides opportunities for sustainable investors as advancement and investment is needed to enable efficient and reduced resource use, more sustainable land use, and to protect the biodiversity of natural ecosystems.
According to the World Bank*: ‘today, some 56% of the world’s population – 4.4 billion inhabitants – live in cities. This trend is expected to continue, with the urban population more than doubling its current size by 2050, at which point nearly 7 of 10 people will live in cities.’
As more than 80% of global GDP is generated within cities, urbanisation can also facilitate sustainable growth via increased productivity and innovation, so long as it is well managed. However, at the current scale and speed of urbanisation, there is hastened demand for affordable housing and viable infrastructure, which includes transport, jobs, and basic services.
Cities perform a vital role in tackling climate change, for as they grow, their exposure to climate and disaster risk increases. Since 1985, about 76,400 km2 of newly urbanized land was added in locations with inundation depths of over 0.5 meters. Globally, 1.81 billion people (1 in 4 people) live in high-risk flood zones and exposure is particularly great in the densely populated and fast urbanising river plains and coastlines in developing countries, where 89% of the world’s flood-exposed people reside. (World Bank) *
As cities are at the forefront of fighting epidemics, the COVID-19 pandemic was an enormous challenge for both cities and their inhabitants, regardless of whether they were rich or poor. Its impact, and in particular the measures taken to control the spread of the virus, revealed weakness in the economic structure of cities, and in their abilities to respond to such a crisis. This was especially evident within the state of their public health and service delivery systems.
Creating successful, sustainable cities that are green, inclusive, and resilient entails efficient policy implementation and suitable investment choices. National and local governments have an imperative role to play in shaping the future of their development, and to ensure that all can thrive within the cities. With increasing use of the theme / term ‘smart cities’ in investment, are we to conclude that Smart Cities are the answer to the challenges caused by rapid urbanisation and to ensure the development of sustainable cities?
Smart Cities are where urban administration is conducted via cutting edge technologies that administer areas such as: automated garbage disposal, efficient water usage (including rainwater gathering) and composting, digitalized services (such as tax and power meters being linked to a central control room), parking solutions where parking systems are automated and robotic, and a Central Command and Control system is set-up that monitors all aspects of urban governance.
Across our Sustainable and SRI range we hold the Brown’s US Sustainable Growth Fund, which has NVIDIA in its top holdings. NVIDIA is a technology company that is working on building smarter cities using AI. It has developed ways to turn data into improved operational efficiency and safety. NVIDIA believes that AI delivers innovative ways to create more sustainable cities, maintain infrastructure, and improve public services for residents and communities. This starts through their NVIDIA Metropolis platform for Vision AI, where they have the ability to gather data from trillions of sensors and other IoT devices and extract actionable insights.
However Smart Cities cannot solve the issues in isolation, as the fundamental root causes of the problems have to be addressed. For what is the point of automating city systems, when water is running out and the aquifers are being depleted?
We need to strengthen the existing urban management systems in a practical and physical manner as well. They have to be fit for purpose. Fixing water and power leakages would bring more revenue to corporations, and help the citizens lead more sustainable lives.
Furthermore, repairing the water bodies on which cities depend would be a starting point for better urban governance. Across our Sustainable and SRI range, Water is one of our longstanding themes. We hold the Fidelity Sustainable Water & Waste Fund and the Pictet Water fund. In the top holdings of the Fidelity Sustainable Water & Waste Fund is Veolia. Veolia works for Cities, local authorities, and inter-municipal structures to increase energy efficiency in water cycle management.
In the Pictet fund, Water Technology represents over half of the fund’s holdings. These water technology companies develop tools and systems to improve water quality and the efficiency in which we use water. Companies held within the fund include water quality monitoring companies such as Danaher and Thermo Fisher. Both these companies provide analytical and diagnostic equipment, alongside environmental monitoring applications and life science applications. Water Supply represents around a quarter of the fund’s holdings, which includes the provision of water, waste-water treatment, and sanitation services, which are essential to urban development. A fifth of the fund is then invested in Environmental Services, which includes companies that offer solutions for waste management and wastewater treatment to provide ecological and environmental protection. This includes urban and hazardous waste, which needs to be treated in a safe and rapid way to prevent the spread of viruses and hazards and protect underground aquifers. The fund also invests in companies that design, engineer and construct water and wastewater infrastructure.
As well as repairing and managing water and waste effectively, a sustainable city also needs to be responsible with granting permissions for further construction, so as prevent the cities becoming ‘concrete jungles’ and to help to ensure green space within cities.
Across the Sustainable portfolios we hold the FP Foresight Global Real Infrastructure Fund. One of this fund’s top holdings is Transurban Group. Transurban design roads for long-term use, to ensure real and lasting benefits to cities and their communities. They are also a technology company, researching and developing innovative tolling and transport technology that makes travel easier for city residents. The company recognises that ‘cities are growing fast, and they are all about keeping cities moving’.The company commits to outstanding performance on social and environmental issues, to ensure that they create social inclusion and manage environmental impacts. Working as a member of their local communities, they build parks, bike paths, create new community facilities, and plant trees for wildlife habitats. Their community and sustainability activities include developing apps and other tools to make travel easier. Transurban also provide community grants and work with community groups to support people going through tough times. They have introduced urban solutions such as, building a sound wall, upgrading local bike paths, and transforming a former quarry into a new park, as well as solutions to manage environmental impacts, and help mitigate the impacts of climate change.
In conclusion, the sustainable solution to rapid urbanisation would appear to involve both improving the efficiency and structure of the existing infrastructure, as well as investing in smart city policies and capabilities. Together these approaches can improve the quality of urban life and enable cities to sustain growth responsibly. Therefore, urbanisation is a tail wind that sustainable investors can benefit from, as they have exposure to the opportunities and solutions in their portfolios.