Today we are living through a fascinating time for humankind. Our landscape is in flux on several dimensions and capitalism as we have known it is transforming.

In conversation with

Christophe Donay, Head of Asset Allocation & Macro Research, Pictet Wealth Management, and Hans Peter Portner, Head of Thematic Equities, Pictet Asset Management


For hundreds of years capitalism has exploited nature as a free resource. But as our climate warms, oceans acidify and biodiversity diminishes, we are obliged to shift away from this form of capitalism as we have known it and toward the Capitalocene. Today, the Capitalocene is rising.

In brief

  • Capitalism as we know it will transform to a more sustainable model, focused on human and planetary wellness
  • The planetary boundaries framework is used to identify companies operating within a safe operating space from a sustainability perspective and measure the environmental impact of economic activities
  • Innovation will facilitate and accelerate this transition among companies

Capitalism is dead, long live the capitalocene

Christophe Donay, Head of Asset Allocation & Macro Research, Pictet Wealth Management

Christophe Donay: The production/consumption-driven capitalist system is giving way to a model driven by personal wellbeing, the preservation of nature and our ecosystem, none of which have hitherto been considerations in capitalism’s end game. The unconstrained exploitation of natural resources as “free” in the name of growth at any cost has failed to take into account the negative externalities that impose a real cost on our ecosystems. For decades, a small cohort of economists have argued that unlimited growth forever is not possible, given that natural resources are finite. The biosphere simply cannot absorb the degree of current human economic activity without serious negative consequences, particularly global heating, wealth inequality and declining health and wellbeing. The science of economics must now throw its weight behind developing ecologically sustainable models if capitalism is to survive. Enter the Capitalocene era.

Whereas past economic crises were triggered by systemic financial weakness, future crises will be the result of environmental and social instability, the covid pandemic being a perfect example of this. Human activity and mother nature do not exist in isolation. Indeed, they are two parts of the same system and it is time to consider the economic system and the ecosphere as a single, complex system in which the two interact through feedback effects.

Hans Peter Portner, Head of Thematic Equities, Pictet Asset Management

Hans Peter Portner: The way we look at this from a thematic perspective is through a lens focused on themes at the intersection of different secular trends, or megatrends. From an investability perspective, the most relevant such megatrends for us are sustainability, focus on health, demographics and technological development. Taking the sustainability megatrend and drilling down, we use the planetary boundaries framework to outline a safe operating space for economic activities. From there we define an investable universe of companies within this safe operating space. That means that these companies do not inflict harm on biodiversity, fresh water and the climate, etc. This universe of companies is structured along several subthemes like renewable energy, sustainable agriculture, water and waste management and pollution control, and it is a sizable market, currently valued at USD 2.5tn and growing around 6-7% per year.

The economy of living

Christophe Donay: Another theme quickly gaining ground is the economy of living, which is the capacity to create a virtuous circle in which citizens’ wellbeing drives economic prosperity, stability and resilience. It is focused around health and wellbeing, education, equality and social security. In line with the UN Sustainable Development Goals (SDGs), this theme emphasizes measuring progress with metrics beyond GDP.

Three key dimensions are at play in the economy of living: environmental protection, social justice and securing a democratic framework (at least in the West). The current covid crisis merely accelerated and exacerbated pre-existing trends, helping to distinguish winning from losing economic themes and sectors. Clear winners are alternative energy, education, agriculture and food, health and eco-sustainable tourism. Meanwhile, sectors in decline are fossil fuels, automotive, aerospace, mass tourism and airline transport.


Hans Peter Portner: Not only is our planetary boundaries framework a tool to define an investable universe, but it also represents a model to measure the environmental impact of economic activities. We decompose each company in standard economic activities for which we have an input-output model of resource input needs and the output with all related externalities along nine environmental criteria. Measuring impact is important. Pictet’s core values, like long-term thinking and our sense of partnership, guide us to invest with a positive impact. This effort is also in line with the UN SDGs.

A fantastic innovation wave

Christoph Donay: Economic policies to combat companies’ negative externalities can be either coercive or incentivising and innovation is the main driver behind the latter approach; it preserves the market mechanism. The current innovation wave is deflationary, global, disruptive and exponential in nature.


Hans Peter Portner: Innovation, or in our megatrend framework, technological change, is a major secular growth driver. This is especially clear in robotics and the digital revolution. Robotics disrupt production processes and digital innovation disrupts entire business models.

Biotech is one of the purest plays for investing in innovation as it flourishes independently of the economic cycle. We need to support our bio infrastructure to cope with humankind’s environmental footprint, which triggers a lot of capital growth in clean energy, water and timber (just think of timber as both a CO2 sink and a smart material).


Christoph Donay: How does this translate to markets? There is a ubiquitous concentration phenomenon affecting markets in earnings and margins growth. As a result, a small percentage of (mainly innovative tech) companies are generating the overall equity market performance. There is also a geographic tilt toward the most innovative countries: China and the US.


Hans Peter Portner: As thematic investors, we mitigate the concentration risk by not following capitalisation indices, which are backward looking. Furthermore, when investing by theme, the overlap with global equity indices is low.


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