Governments are no longer wasting valuable time debating the reality of climate change, and instead ...
Governments are no longer wasting valuable time debating the reality of climate change, and instead are beginning to take actions necessary to combat the crisis. Getting anywhere near the target of an 80% reduction in CO2 emissions by 2050 (compared to 1990 levels) will require a major global transformation - another industrial revolution. Investors, however, are only just waking up to the fact policymakers are serious about tackling climate change, and investors are beginning to appreciate the huge potential of companies that stand to benefit from these endeavours.
The car sector is a good example. A number of governments including the US, the UK and China are introducing incentives to get carmakers to produce electric vehicles (EV) and people to buy them. In the US, for instance, EV buyers will qualify for up to a $7,500 tax credit. The UK is introducing similar subsidies.
It is not so much the carmakers, however, that should interest investors. In our fund, we have exposure to specialist battery manufacturers, as we believe this is one of the key components that will differentiate the cars. Unlike petrol-powered cars, in which the manufacturer tends to own the technology of its key parts, big carmakers are striking deals with specialist battery manufacturers that can supply this crucial component. Saft is one such example, along with just a handful of others including BYD and Ener1.
Infrastructure, however, needs to be developed for this to work, and this includes recharging stations but also manufacturing plants. The first part of the $30bn of US funding available for smart grid, advanced battery and energy-efficiency initiatives has recently been announced. It involves $2bn for manufacturing batteries. Ener1 currently has the only domestic facility in the US producing lithium-ion batteries, and government funding would enable it to ramp up production over the coming few years.
Transportation is not the only area worth investing in. We expect the UK Government to join others in developing clean and renewable energy technologies. This is likely to include wind, solar, nuclear and 'clean coal'. Energy efficiency, low-carbon fossil fuels and environmental resources are some of the other broad investment themes worth exploring.
So far, we have identified over 700 stocks globally in which climate change has a significant positive impact on the investment case. Our investment universe is continually evolving not only as we increase our understanding, but as legislative and corporate policies unfold and technologies develop. We believe that climate change is an important issue that should be factored into virtually every investor's long-term investment strategy and asset allocation. The key is to select a strategy that provides diversification yet captures the long-term implications of climate change.
