Degrowth and Post-Growth: Implications for Investors

Imagine a world not driven purely by pursuit of economic growth. A world where our economies and businesses exist to meet our needs, but not at the cost of the Earth and our societies. A world where holistic measures are used to measure success, and where the human spirit of endeavour is not bound by a simple, three-letter acronym: GDP.

For years, gross domestic product has been the God-head of mainstream economic thinking and policy, and it is undeniable that for a lot of (though not all) people around the world it has led to improvements in living standards.

However, our hunger for eternal and ever-faster rates of growth has come at a cost. We have (and continue to) force our climatic systems to change by burning materials which, let’s be frank here, are probably better off staying in the ground (or at least not being squandered as fuel). We continue to cause land and water pollution via our linear, take-make-dispose economies, disrupt natural ecosystems and reduce their biological diversity, and continue to increase levels of wealth inequality across the globe.

Is it time, then, to despair? Not quite. There is growing movement of individuals and groups not only calling for real, systemic change, but also providing developed alternatives to our current economic systems. While conversations within these movements are continuing, and while there are differing opinions on the specifics, a common theme among them is the idea of boundaries (and especially the idea of staying within them), as well as the need for metrics other than GDP to be used in policy and business decision making.

Doughnut Economics, for example, is a proposed economic model centred around notions of meeting the basic needs of boundaries, without exceeding planetary boundaries. The post-growth movement is similar, with arguments here calling for reduced levels of economic activity to ensure we operate within an environmentally safe operating space, while ensuring human needs continue to be met.

Now, while there is far, far more to these movements than the above, here I want to focus on something a little more specific – what would degrowth and an eventual post-growth economy mean for investors? After all, investors often want to invest in order to guarantee an income in later life, but how would this work in a degrowth and a post-growth economy?

While degrowth would mean economies shrinking in terms of output (i.e. less of the producing more and more stuff we don’t really need), there would still be an economy. We will all have to buy the things we need, and there will be people who are meeting that demand; we will all need to eat, care for our health, and travel to meet loved ones.

In essence, there will continue to be buyers and sellers, with money changing hands and continuously circulating, and businesses will still be able to make profits. In terms of company-level growth, this will not be tied to just providing more and more, but more closely linked to providing what we need in a better way. 

As a result, investors will still be able to benefit from company growth and profits; lenders will still be earning returns from interest, and holders of equity will still be entitled to shares of profits. So, if this remains to be the case, how would degrowth impact individual investors? Unless individuals decide the make their investment choices themselves, the answer is not much. For investment managers, however, it would be a different story.

It will be the job of managers to identify companies, and funds containing companies, that can continue to work in a postgrowth world. There will be companies that are not positioned to do so (and so will need to be either avoided or engaged with), there will be those that sit comfortably in a post-growth world (and will provide a steady income for investors), and there will be trailblazers who innovate, do things differently, and flourish (and thus prove excellent opportunities for investors).

To identify these companies, consideration of ESG factors is likely to be even more important; companies engaging in activities that contribute to boundaries being exceeded are unlikely to survive without radical evolution during a degrowth period and in a post-growth world, and those which can meet the needs of our societies in a truly sustainable (or even regenerative) manner will be better positioned to perform well financially.

In summary, for individual investors, a transition to a post-growth economy wouldn’t majorly affect the actions that need to be taken when it comes to investing via a manager. The main challenge will be the identification (by either themselves or their financial advisers) of managers that are best equipped to make investment decisions that are most likely to perform well in a post-growth world.

Cameron Barker – Communications and Marketing Lead