18 January 2022
Combating climate change is one of the most pressing issues of our time, and we constantly hear of new solutions and ideas to resolve this issue. Take the recently-concluded COP 26 conference in Glasgow, where organisers urged all to play their part in “unleashing the trillions in private and public finance” that would help secure global net zero. Or the countless companies investing heavily in sustainable technologies and renewable resources.
Climate risk is a clear and present danger, but it can also be an enormous opportunity for long-term investors: combining climate action with economic reforms will likely lead to economic growth.
This is good news for environmentally-conscious investors because now, it’s easier to measure performance and returns. In other words, investing in the environment isn’t only a way to do good but represents a fundamental shift with high growth potential in returns.
And, we have good news: we’ve just launched our Environment and Cleantech Thematic Portfolio that focuses on 5 cutting-edge subthemes. These subthemes can create a greener future and grow your investment returns:
Energy storage and smart grids
Here’s more on these themes and why we believe they will grow:
There are strong financial motivators to improve clean energy, and that’s because renewable and efficient energy sources can generate huge savings.
Take semiconductor technology, for example. Incremental advancements in this technology have made light-emitting diodes, or LEDs, possible. LEDs use 75% less energy than traditional bulbs, and their widespread adoption is set to save up to 569 terawatt hours each year in the US by 2035.
Clean energy is also becoming cheaper, thanks to technology advancements, economies of scale, and increased competition. For example, solar-cell technology costs have come down by 85% since 2010, making it cost-competitive with fossil fuel energy.
The outcome of all these benefits? The renewable energy sector is growing: the International Energy Agency (IEA) forecasts nearly 40% higher growth in 2021 than it expected a year ago.
Water scarcity is one of the most pertinent challenges exacerbated by climate change. The United Nations Educational, Scientific and Cultural Organization (UNESCO) estimates that more than 2 billion people worldwide live in countries facing water stresses. Still, water demand continues to rise in middle- and lower-income countries.
The global water and wastewater treatment market is expected to grow rapidly to meet this demand. In 2020, the market was valued at $61.6 billion USD. Now, it’s set to grow at a compound annual growth rate (CAGR) of 4% from 2021 to 2028.
Millions of Americans plunged into darkness after power systems were knocked out after 3 unprecedented winter storms in Texas. More than half a million Australian households went without power after a severe wind storm hit Melbourne.
These are just some recent events in 2021 where extreme weather caused widespread blackouts. For grids to operate correctly, electricity supply and demand must be balanced. But with extreme weather events becoming more frequent across the globe, power grids are finding it difficult to cope.
Smart grids and energy storage systems can help make this balancing act more efficient by reacting in real time to changes in energy production and consumption. When electricity is transmitted more efficiently, systems can come back online more quickly, making communities more resilient in the face of outages caused by natural disasters.
The global smart-grid technology market is expected to power ahead in the next few years. Valued at $36.9 billion USD in 2021, it’s expected to expand at 8.7% CAGR to $55.9 billion USD by 2026.
More trash in our landfills means more methane in our atmosphere, and more methane means faster rates of global warming. And, humans are generating waste faster than they can treat it: The World Bank estimates that by 2030, the world will generate 2.59 billion tonnes of waste annually and 3.4 billion tonnes by 2050.
The good news is governments and regulators are beginning to take more action to combat this issue. The European Union and China made clear, measurable commitments in 2021 to achieving sustainable and circular economies¹'², providing more opportunities across waste treatment and disposal, recycling, materials recovery, waste-to-energy technologies, pollution control and circular economy solutions.
This shift has led to more investors favouring companies that prioritise waste management. In the past 5 years, shares of some of the largest companies in the waste management sector, such as Waste Connections, Waste Management, and Republic Services, have returned about 22%, 20% and 19% a year on average, respectively. In comparison, the S&P 500 returned about 17% a year on average.
Seems like garbage can be gold, after all.
Greening the world can be a costly affair, and many of the technologies and innovations we’ve highlighted above don’t come cheap. That’s why many companies are now turning to green-financing initiatives to help fund their environmentally-friendly projects.
One way is through green bonds, where issuers commit to using proceeds only for green equipment or projects. Another is through sustainability-linked loans, where borrowers only need to commit to sustainability performance targets and enjoy a reduced loan interest rate if they meet these targets.
With increased global commitment to climate action, heightened awareness of climate issues, and firmer regulatory scrutiny, investors have snapped up green bonds and sustainability-linked loans. As a result, we’ve seen rapid growth in the green-financing market. In the first half of 2021, green and sustainability bond and loan issuances reached $809.5 billion USD, eclipsing the full-year total of $743 billion USD for 2020.
Investing in our Environment and Cleantech theme offers investors a way to help create a better world. At the same time, they can gain exposure to the high-growth technologies and solutions poised to address imminent problems, ranging from climate change to pollution and resource scarcity. The theme also provides investors broad, risk-managed exposure to the companies driving innovations in the technologies crucial to a greener future.
Ultimately, these solutions can create a cleaner and more sustainable world, grow rapidly, and help investors build long-term wealth. And, you can invest in them today.
Find out more about our Thematic Portfolios →
¹“European Parliament adopts resolution on the new Circular Economy Action Plan”, Water Europe, published Feb. 17, 2021.
²“China unveils new circular economy plan”, Waste Management World, published July 8, 2021.