The Germans have a phrase with its origins deep in the Middle Ages: the city air makes you free. It comes from the fact that from the 11th century onwards, serfs who slipped the bonds of feudalism and hid in Germany’s nascent cities could not be reclaimed by their landlords if they were able to evade capture for a year and a day. Living in a city could quite literally set them free. This is emblematic of a broader truth about cities: they have always exerted a tremendous magnetism as places of economic opportunity, places of excitement, places liberated from the smallness and stifling social conventions that often characterised rural life.
The proof is in the vast demographic shift away from the countryside and into urban areas that has played out across the globe, catalysed by the industrial revolution in the late 18th century. In 1800, 3% of the world’s population lived in cities. By 1900, it had climbed to 15%, and in 2008 the world crossed an epochal threshold, with more people globally living in cities than the countryside, reversing a pattern that had defined human settlement for tens of thousands of years. The UN now estimates that 68% of the world’s population will live in cities by 2050, with 90% of the increase in the next thirty years occurring in Africa and Asia. By then, there will be few, if any, majority rural nations left on earth.
And cities have captured more than just large numbers of people. Despite accounting for just 2% of the earth’s surface area, they generate 85% of global GDP, and in fact the concentration is even greater than that, with 40 super-cities, often almost states unto themselves, accounting for more than two thirds of world economic output. Cities dominate not just commerce, but political engagement, cultural creativity and social trends. They are nexuses of ideas and information exchange. The picture is clear. From here on out, the human story will be an urban story. So, we must make cities sustainable.
A large part of that sustainability solution will need to be environmental. Cities don’t just punch above their weight economically. They also generate over 70% of the energy related global greenhouse gas (GHG) emissions, and are hotspots of pollution. The city air, it seems, can choke and overheat you, as well as setting you free.
Part of the GHG problem is rooted in the very fabric of cities, the buildings and the architecture that are the physical manifestations of a city’s dynamism. Buildings contribute a remarkable 39% of all global greenhouse gas emissions, outstripping their more stigmatised peer, the transportation sector. In aggregate, buildings have carbon emissions in excess of the entire nation of China. In order for the world to meet the Paris Agreement goal of limiting global warming to sub 2 degrees, buildings must be net zero by 2050. In 2017, there were a paltry 500 net zero commercial buildings in the world, and 2,000 net zero homes, far less than 1% of the global stock of either form of real estate. The journey towards de-carbonising the world’s buildings will be a vast and vital one, and it has barely begun.
But if the task is enormous, so are the opportunities associated with solving it. Schneider Electric is a global leader in helping buildings both automate their processes and navigate the energy transition. Schneider’s products are embedded in building projects from design through to implementation and maintenance, making them indispensable to a positive energy outcome for buildings, and widening Schneider’s own ‘economic moat’ in the process. Schneider’s products and services can radically increase a building’s efficiency, for example through automating the cooling, heating or lighting of a building to optimise them for the level of occupancy. Schneider believes that various efficiency improvements of this sort can reduce annual energy consumption in a building by 66%, a significant chunk of the journey to net-zero.
Schneider works directly with companies trying to achieve carbon neutrality, covering the spectrum of their energy impact:
- Working to reduce the client’s energy use on their manufacturing and design sites;
- Helping them procure more renewables to feed the energy they do need;
- Implementing appropriate carbon capture solutions.
Already, Schneider has helped its customers save a remarkable 134mn tons of CO2, and through 2025 they want to help deliver 800mn tons of saved and avoided CO2 emissions to their customer base.
Autodesk is another business trying to make cities more sustainable, developing software products that help with design and implementation across architecture, engineering, construction, product design and manufacturing. Up to 30% of all the work done on construction sites is re-work, and as much as 30% of construction materials are wasted on-site, costing time and money, and also incurring an unnecessary environmental impact associated with the procurement and transportation of that wasted material. Autodesk works closely with clients to efficiently model their construction processes to minimise wastage and re-work. It has software programmes that use machine learning to enhance design reviews and detect high-risk defects early in the design process, pre-empting them before wastage has occurred. Construction can be a dangerous, injury prone business, but Autodesk reviews hundreds of millions of data points to train algorithms to find patterns of unsafe behaviour in construction, and then shows clients how to avoid these moments of elevated risk, helping save lives on sites.
Within a building, Autodesk’s software can conduct energy analysis from concept to model, it can optimise air-conditioning and heating and it can recommend more efficient structural materials. The actual carbon embodied in in the materials used in buildings alone counts for over 10% of GHG emissions, and Autodesk has produced software that allows clients to analyse their raw materials during the specification and procurement process to ensure that what they are buying in has the lightest environmental footprint possible. A process that used to be enormously time consuming and complicated can now be done in minutes.
The desire to fend off darkness, first by fire, then by gas, and finally by electricity, is another of humanity’s enduring desires. Cities have become focal points of illumination, observable even from space, with light burning day and night. Moscow, Riyadh and Montreal are estimated to be the brightest cities on earth. But traditional electric lighting is itself a culprit in the global emissions picture, culpable for roughly 5% of global emissions. Reverting to darkness is clearly not an option, but companies are finding innovative solutions to keep us well-lit without emitting as much carbon. Acuity Brands is a world leader in LED lighting, which as well as being cheaper than conventional electric lighting, is as much as 75% more energy efficient, and so is one of the most actionable, ready-to-implement solutions to a lower carbon economy. Acuity can also help with advanced control systems which reduce the wattage and operating time of these bulbs, bringing about another 47% energy saving.
Acuity estimates that it can save 100 million metric tonnes of carbon as a result of its projected sales over the next decade of LED lights, controls and building management systems replacing older technologies in existing buildings. That’s equivalent to the GHG emissions of 1.4mn cars driven for a year, or the CO2 emissions from 870,000 homes in a year. In the United States alone, 75% of buildings comprising 71% of floorspace were built before 2000, and the majority of them have not had a lighting upgrade, providing Acuity with a huge opportunity to revamp this lighting infrastructure, making it far less energy intensive.
As the world continues to pack its bags, wave goodbye to the countryside and migrate to ever larger mega-cities, the task of ensuring that these cities are sustainable will grow commensurably. We are invested in a number of businesses committed to ensuring that cities are less energy intensive, less polluted and more connected. Companies like Schneider, Acuity and Autodesk are tethered to multi-decade trends that will require enormous economic investment, and they exemplify the model of doing well through having a vital, positive impact. They are helping to build the sustainable cities of tomorrow, where the bulk of humanity will live their lives.
Harry joined BMO GAM in 2013, and works as a portfolio manager on the Global Equities team. He focuses on Japan, as well as global stocks contributing to Technological Innovation and Health and Well-Being. Outside of work he is interested in understanding history, as well as mastering Jiu-Jitsu – both of which are proving equally challenging.