The increase in economic activity over the past few centuries has placed considerable pressure on the planet’s finite resources and has resulted in unprecedented levels of climate disruption. Today, more than ever, there is coordination among consumers, businesses and policymakers to drive action for positive change – as evidenced by the Biden Climate Leaders Summit today. , on the occasion of Earth Day.
Climate change is transforming the way investors view opportunities and risks globally. Indeed, the sense of urgency is all the more palpable as the real effects of climate change are visible.
This also offers investors a clear opportunity to gain targeted exposure to companies that offer innovative products, services and solutions to alleviate pressures on the environment. While we can’t guess what the future holds, we see four key areas where we expect to see opportunities for investors concerned with the future of the Earth (and long-term returns): clean energy, infrastructure, electric vehicles, and resource management and recycling.
The world’s population continues to grow, as does the demand for energy. An increasing proportion of the world’s energy supply will need to come from a mixture of renewable sources, in order to achieve a net level of zero.
Renewable energy penetration levels are expected to continue to increase in order to diversify national grids that have historically been dependent on fossil fuels. The increased adoption of renewable energies will also help improve energy security and play an important role in the transition to a + 2 ° C world, as foreseen in the 2015 Paris Agreement.
From simple LED light bulbs to the burgeoning Chinese smart grid, businesses and policymakers are looking for new by-products for global infrastructure and also looking for the most efficient and sustainable methods of supplying the world with energy. Efficient infrastructure spans a range of diverse areas, including industrial manufacturers, automation technologies, system operators, technology providers, and home and commercial building builders.
With further urbanization in developed and developing economies, the share of final energy demand and emissions from buildings and appliances will increase. In 2017, 36% of final energy demand came from buildings. Air conditioning only accounted for 6% of that demand, but as populations urbanize, living standards rise and temperatures warm, this share is expected to rise to 37%, as more devices are installed worldwide.
With the increase in demand comes a possible increase in emissions. Buildings contribute almost 40% of all energy-related CO2 emissions in the world, and air conditioning accounts for 12% of total buildings. With the installed base set to grow, companies offering environmentally friendly air conditioning solutions should be best placed to take advantage of these age-old trends.
The global auto industry has undergone tremendous changes in recent years and there is no indication that the pace of these developments is slowing down. The growing knowledge of the impact of the internal combustion engine on the environment has led to a noticeable change in consumer choices in the automotive field and in the attitude of governments in favor of more sustainable electrified transport. This means that the penetration of electric vehicles around the world will continue to increase over the next decade, and that the investment opportunities surrounding this industry are by no means limited to the automotive sector.
For example, the market for battery cells is growing exponentially. In the history of the automotive industry, no supplier has had a level of cells per vehicle as high as that of battery suppliers today. Consolidation of the battery industry has started to shift value to the larger cell manufacturers.
Equally important, investments in other upstream and mid-chain companies, such as base materials (lithium and nickel), semiconductors and automotive parts manufacturers, are expected to benefit from increased global penetration of electric vehicles. .
Resource management and recycling
The growth of the world population, which could have an additional 2.2 billion people by 2050, will put additional pressure on the planet’s finite and endangered natural resources, especially freshwater, crops and forests.
Of particular urgency is the rate at which the world continues to draw on dwindling supplies of fresh water. Unsustainable levels of freshwater extraction have seen countries like South Africa move closer to a “day zero” scenario.
The threats of zero-day water scarcity will continue to multiply without the introduction of new solutions to reduce water consumption and waste. The good news is that countries of all income levels are committed to increasing levels of treated wastewater, and new precision farming technologies are seeing higher adoption rates.
Earth Day 2021 focuses on how natural processes, emerging green technologies and innovative thinking can restore the planet’s ecosystems. With climate change and other environmental factors high on the political agenda, our long-standing theme, Earth Matters, and its sub-themes take into account a wide range of environmental concerns, including clean energy, infrastructure efficient, electric vehicles and how we manage resources at all stages of their lifecycle.
 IEA, IMF; Newton Investment Management analysis, 2020.