Invest to Halt Climate Change and Make a Profit Too

An increasing number of businesses are developing new technologies to manage the impact of climate change, presenting attractive opportunities for investors

Karen Kwok 24 May, 2017 | 2:24PM

Keen do something about the threat of climate change? How about investing in the companies which will help lessen the impact of global warming on our planet and its population.

An increasing number of businesses are developing new technologies to manage the impact of climate change, presenting attractive opportunities for investors – from a returns standpoint as well as an environmental one.

“Five years ago, governments of developed nations set a goal pledging $100 billion every year to deal with the worst effects of climate change. But they now only have $10 billion in place, meaning that the remainder must come from the private sector,” said Bertrand Gacon, head of impact with Lombard Odier.

Growth of new investment into green energy globally has surpassed other types of energy over the past few years. Data provided by Jupiter showed that global new clean energy investment, from both private and government sectors, reached a record level of $349 billion in 2015.

“The sector is growing very quickly, although the percentage of green energy in the overall energy market remains small,” said Charlie Thomas, manager of the Bronze Rated Jupiter Ecology fund.

More Investment Needed

Despite record investment, if we are to meet the Paris Climate Agreement’s objective to limit global warming to only two degrees by 2100 levels an estimated $700 billion extra investment is required annually, according to data from World Economic Forum.

“This $700 billion that is not on the table today, sounds like a significant amount of money, but it is less than three times Apple’s annual revenues, or more or less the same as the amount of money the total turnover of the tobacco industry, on a yearly basis. Humanity is spending so much in cigarettes, when they could be funding the solution to climate change,” said Lombard Odier’s Gacon.

Coal Power Comes to an End

Besides the welfare of the planet, there are other reasons to give a helping hand to climate change issues. The transition from non-renewable energy to green energy power generation is an investment opportunity.

As coal and nuclear power stations retire, they are going to be naturally replaced by new type of energy generator. In November 2016 the Department for Business, Energy and Industrial Strategy announced a consultation to close the UK’s remaining coal-fired power stations by 2025. In April this year, UK marked its first coal-free power day since the Industrial Revolution.

“Increasingly we see more renewable energy playing important roles in the industry, which drives a lot of growth in the green energy market. Switzerland voted not to extend nuclear power station recently and Germany also wants to close their nuclear power generation,” said Thomas.

Chris Hiorns, co-manager of the EdenTree Amity Sterling Bond fund agreed, saying that investment in green energy has grown in prominence in the UK.

“We play the space mainly through infrastructure funds, including Greencoat UK Wind (UKW) and John Laing Environmental (JLEN). Most of the funds are trading at premiums, suggesting there is plenty of demand for these assets in the UK,” said Hiorns.

Thomas added as renewable energy generation becomes much cheaper and more competitive, there will be a need for much more investment in infrastructure to conduit this energy.

Energy Efficiency

Besides infrastructure, there are a variety of businesses developing new devices to improve energy efficiency – creating further investment opportunities, according to Thomas.

“Green energy is by far the cheapest form of power generation. However, the cheapest form of energy emission reduction is not using the electricity at the first place – so by saving more energy and using energy more efficiently can help reduce emission, which helps the environment as well,” said Thomas.

“What we are confident in from an investor perspective is that the cost of energy is absolutely going to come down; we see technology developing quickly and becoming more cost effective.”

Lombard Odier’s Gacon agreed, saying that energy efficiency has a big role to play.

“If you compare the amount of energy we produce to how much is being consumed, 80% of energy is lost in the process by transporting the energy, and by the lack of energy efficiency in cars etc,” said Gacon.

Thomas Sørensen, manager of the Nordea 1 - Climate and Environment Equity Fund added: “It is often not the most visible area in the universe but energy efficiency is one of the most diverse and interesting; spanning from smart farming via advanced navigation systems to energy efficient cooking and process equipment to energy efficient lighting and building material applications. Our investments in this area are focused on companies that are global leaders in high-efficiency technologies.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Cranswick PLC2,866.00 GBX-1.17
EdenTree Amity Sterling Bond A103.70 GBP0.10
Greencoat UK Wind140.60 GBX0.00
John Laing Environmental Assets Ord113.50 GBX0.00
Jupiter Ecology392.35 GBP0.29
Nordea 1 - Gl Climate and Env BP EUR18.36 EUR-0.22
Vestas Wind Systems A/S91.10 USD-0.28

About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk

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