PARTNER INSIGHT: Luciano Diana, senior investment manager at Pictet Asset Management, reviews the growth drivers behind the environmental products sector.
The combination of people power, government policies and economics has given rise to a thriving - and eminently investable - industry for environmental products and services. China's generously-funded anti-pollution drive, for example, is likely to boost the prospects of firms that develop environmental technologies such as filters for engines and industrial applications for pollution control.
More broadly, as corporations worldwide embrace sustainable business practices, publicly listed firms specialising in the development of a broad range of environmental technologies have mushroomed, while the number of patents filed for environmental products over the past decade has more than tripled. Overall, we estimate that the environmental products industry is already worth some USD2 trillion, and can grow by about 6-7% per year.
That should matter to investors: companies operating in this sector should, according to our estimates, see sales growth of 6.5% per year, outpacing that of firms in the MSCI World equity index by more than 2 percentage points.
As with all rapidly-evolving industries, identifying the most promising investment opportunities isn't straightforward. That is why investment managers of the Pictet-Global Environmental Opportunities strategy have developed a process that deploys both a scientific, rule based framework and traditional company-by-company research to build their portfolio.
The first step in the process is to identify firms with the strongest environmental credentials. These are companies that neither make excessive use of raw materials nor generate disproportionate amounts of waste. Then, from this group, we seek businesses that specialise in the development of products or services that mitigate environmental damage.
In order to identify firms with these characteristics, we perform an ecological audit that establishes the environmental footprint of more than 100 sub-industries. This audit incorporates two novel measurement tools - the Planetary Boundaries (PB) framework and Life Cycle Assessment (LCA).
Click here to learn about some of the long-term investment opportunities of these environmental trends.
