Dealing with coronavirus has on the one hand served as a reminder of other global and existential problems. The global population together with rising incomes will be increasing demand for energy, food and water, with all the additional emissions that go with it.
On the other hand, the pandemic has shown that it is possible to take far-reaching measures fairly quickly and to act in a coordinated, even global way in the face of a threat. Such an approach is also needed to deal with interconnected climate issues such as demand for resources and the need for decarbonisation that will involve tens of billions of dollars.
Broad support for dealing with the issues
Encouragingly, the push for measures to tackle these environmental challenges is broadly supported by announced and planned government regulation as well as the public.
Be it in the US, where presidential candidate Joe Biden has embraced the ‘Green New Deal’ and is looking to revitalise the energy sector and make the US into a global energy superpower.
Or in Europe, the European Commission has put forward a roadmap aiming for, among other things, net zero greenhouse gas emissions by 2050 and seeking to turn climate and environmental challenges into opportunities and making the transition just and inclusive for all.
A wide set of opportunities, across sectors, globally
It is worth noticing that there is a broad set of opportunities: in energy, materials, agriculture and industrials. Investors can look to invest in companies that provide solutions to decarbonise such segments and markets.
The investment universe ranges from:
In these areas, it is possible to both take long positions in well-placed companies, those that are best in sector, and to short companies that look set to lose out.
Growth, growth, growth – For now and the foreseeable future
It is important to note that this is a clear growth opportunity.
As an example, the global offshore wind market is set to expand significantly over the next two decades. The International Energy Agency is forecasting 13% growth per year and a 15-fold increase in capacity by 2040. This is expected to become a $1trn industry over the next two decades.1
The European Union has set hydrogen – a source of clean energy – as a key instrument for its Green Deal objectives for 2050, indicating that cumulative investments in renewable hydrogen in Europe could be up to €180-470bn (221-551bn) by 2050.2 Separately, it is estimated that turnover in the hydrogen economy will jump to €140bn3 by 2030 from €2bn currently.
These are long-term opportunities and the solutions to the environmental challenges require large-scale investments: tens of billions of dollars are needed.
Sustainability and sustainable returns
It should be obvious that we are talking not only sustainability, but also sustainable returns.
There is a considerable body of evidence that investments in companies with strong environmental scores outperform those in companies with weak scores over time, that companies that can take advantage of the environmental challenges will outperform those less prepared, with stranded assets or inferior technologies.
Investing in such companies adds alpha to investment portfolios, while reducing risk.
This has been reflected in investor attention: money has been flowing into sustainability themed investments, even in the first half of this year when global pandemic disoriented many investors.
Learn more about what it takes to power the energy transition and a brighter future here.
- Source: https://www.iea.org/reports/offshore-wind-outlook-2019
- Source: https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_1257
- Source: https://www.pv-magazine.com/2020/06/19/leaked-eu-hydrogen-strategy-eyes-e140-billion-turnover-by-2030/
Disclaimer
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