Covid-19 Keeps Investors Focused on Climate Change

The coronavirus crisis has sparked permanent changes in the way people work and live, which many fund managers think will have a positive knock-on effect on climate change

Annalisa Esposito 8 June, 2020 | 2:21PM
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With fewer traffic jams and just a handful of commuters, air pollution levels have dropped significantly amid the Covid-19 pandemic. The sharp change in our air quality has highlighted how quickly changes in pollution can have a positive effect and many argue that fund managers have a duty to take climate change seriously.

“The situation we are in today focuses us on how the future might look like with less pollution and less CO2 in the air,” says Randeep Somel, portfolio manager at M&G. "We are in the middle of a revolution and I don't think we will be going back to what we did in the past.”

So what does that mean for investment portfolios? Somel likes European firm Rockwool (ROCK), which uses the fibre of volcanic rock for building insulation. “It’s the most efficient company in terms of carbon-prevention,” he says. “It has 50% market share across Europe and is growing internationally. It was very capital intense in the beginning, but now it’s much more durable and saves more CO2 compares to peers.”

Numbers aside, what Somel likes most about the firm is that for each unit of CO2 produced in the production, 100 units are saved in emissions in the lifetime of that product. “It’s important that people ask themselves what the company net impact is and how much energy is saved,” he says.

Meanwhile, Andy Howard, head of sustainable research at Schroders likes Tesla (TSLA). The appeal of the stock has only grown now that battery electric vehicles are no longer a niche industry. Tesla’s Model 3 was the best-selling EV last year, selling more than 300,000 units. “The price of a lithium-ion battery pack has fallen by 85% over the past 10 years and this has allowed today’s product offerings to have a truly mass-market appeal,” he explains.

Can Renewable Energy Compete on Cost?

Back in 2008, demand for solar power was limited to a handful of European countries and was heavily dependent on subsidies. But the cost of solar photovoltaic (the technology that converts solar energy into power) has since fallen by 80% and demand has become genuinely global.

A further cost benefit to renewables, says Anne-Laurence Roucher, deputy managing director of sustainable asset manager Mirova, is that they need very limited amount of intervention (just in case of repair issues) once the infrastructure is in place.

Wind energy may have been a more mature industry in 2008, but it has also seen a significant drop in costs in the intervening years as technology has improved and the industry has scaled up. Indeed, at the start of 2020, wind and solar were the cheapest forms of new bulk energy generation in two-thirds of the world, up from as little as 1% of the world five years ago, according to Somel. 

“Why would a country not want to access safe renewable and cheap energy? The renewable market this time is different,” he says. “European leaders have stressed the importance of aligning recovery plans to climate commitments and EU regulation promoting the transition to low-carbon will touch every investment.”

Already there are a plethora of companies poised to benefit from a low-carbon society. And Howard believes the crucial trends for climate change are on a much firmer footing than they were in 2008, even despite the Covid-19 crisis. “The economic drivers for renewables are far stronger than they were following the last crisis,” he says.

Covid-19 Crisis Won't Derail Change

While there is the chance the coronavirus crisis will make businesses re-evaluate what is a necessity in their usual practices, Howard expects the lockdown to spark permanent changes in the way people work and live, which will have a positive knock-on effect on climate change. 

Roucher is thinking even more broadly; she believes the pandemic could make people question their entire existence. “The way we’ve used the planet is detrimental to both nature and humans," she says, pointing to deforestation and intense farming as two examples. 

But cutting out the daily commute is not going to be enough to eradicate greenhouse gas emissions - some 22% of emissions come from food waste alone. 

Somel says reversing climate change means finding solutions to a number of things in our lives: the adoption of renewable energy, convincing businesses to recycle products, making our homes more energy efficient, decreasing the production of meat, and producing more locally. “Plant-based protein is an area when look at climate solutions you cannot ignore," he adds. “The bottom line is, we have the solutions available today to transaction to a low carbon future, but it requires population lifestyle awareness, regulation, technological advances and economic growth."

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.

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About Author

Annalisa Esposito  is a data journalist for Morningstar.co.uk