Investment companies have been adapting to meet shareholders’ needs for 150 years and today’s investment companies are providing
investors with the opportunity to invest in businesses that are helping to tackle the environmental challenges we are facing.
At the start of the year, the UK Government announced its 25 Year Environment Plan to help improve the environment for the next
generation, while the documentary series Blue Planet II has highlighted the impact of plastic waste on the environment. Clearly, the desire for change when it comes to our impact on the environment continues unabated. This is supported further by the recent news about the planned launch of The Global Sustainability Trust, which will “offer investors strong risk-adjusted returns through impactful investments designed to accelerate the delivery of the UN Sustainable Development Goals”.
Sector Specialist: Environmental and Sector Specialist: Infrastructure – Renewable Energy are two AIC investment company sectors
focused on environmental and alternative energy, and renewable energy infrastructure investments, respectively. In addition, GCP
Infrastructure in the Sector Specialist: Infrastructure has a 64% portfolio allocation to renewables as at 29 March 2018.
Political headwinds
Jon Forster, co-manager of Impax Environmental Markets said: “There is real global commitment to addressing climate
change and this is driving growth. President Trump’s withdrawal from the Paris Agreement may have grabbed headlines and suggested that the US has stepped back but beyond Trump, at a state, city and corporate level, decision making is far more supportive. Then there is also the step forward from regions like India and China that have a significant impact. This commitment makes itself felt in any number of areas, from recycling targets to regulations that dictate water treatment standards and building codes for energy efficiency. Momentum is not only there, it is continuing to build.”
Charlie Thomas, manager of Jupiter Green Investment Trust said: “Historically, there have been three trends which we condense
environmental investing down to; firstly, policy; secondly, progress and the development of technology; and thirdly, people (in terms of
population growth). A lot of environmental issues were highly dependent on policy and this has historically been very important, however this can fluctuate.
“The cost of solar technology has gone down by 80% over the last 10 years and will continue to fall as the technology developments in this area continue. Government subsidies for renewable energy are becoming fewer though, as we’re seeing a gradual shift from early stage technology dependent on subsidies being superseded by the pace of technological advances.
“In Europe, there is quite a big drive from incentives towards tackling environmental issues. There’s political legislation encouraging
more money to come in to sustainable funds, which could be significant to the industry as a whole.”
Richard Crawford, manager of The Renewables Infrastructure Group (TRIG) said: “In the UK we see strong support for decarbonisation and tackling climate change. This is cross-party – there are detail differences but the fundamentals are consistent. The Climate Change Act 2008 sets ambitious decarbonisation targets. The legislation was brought in by a Labour government and has been supported ever since through a series of Climate Change budgets. This is important as it illustrates the UK’s commitment over and beyond that coming from Brussels. The extent of the worldwide commitment to climate change is seen by the accord reached in Paris in 2015.”
Ben Goldsmith, CEO, Menhaden Capital Management LLP, portfolio manager of Menhaden Capital PLC said: “Businesses across industrial sectors are increasingly awake to the fact that using energy, water, raw materials and other resources more efficiently is
a substantial money saver. So irrespective of who is in the White House, or what governments are doing to encourage investment into efficiency, it’s happening, and on a huge scale. For us, this represents the investment opportunity of our time.”
Environmental opportunities
Jon Forster, co-manager of Impax Environmental Markets said: “We think that the Electric Vehicle market (EV) is exciting. If
you consider your own circle of acquaintances there was little likelihood of anyone you knew owning or considering owning an EV a decade ago. That isn’t the case today and we think that trend will, if you excuse the pun, accelerate in the next ten years and beyond. It is tempting to look at car brands like Tesla if you are interested in investing in EVs. At Impax Environmental Markets we believe it is difficult to know who the brand winners and losers will be. For that reason, we invest in critical components like materials which are used within EV batteries and power electronics for the drive train** and charging infrastructure. We like both for similar reasons; the need for them will increase as the EV market grows.”
“The BBC’s Blue Planet II helped to put the case for reducing plastic packaging to homes in the UK. Around the world public awareness has increased. This combined with China’s recent bans on imported contaminated recyclables is forcing governments to react. The EU has a target to recycle 90% of plastic bottles by 2025 and the UK Government is in advanced discussions to introduce a deposit scheme for drink containers. Impax Environmental Markets sees a number of investment opportunities, including recycling infrastructure, fibre based packaging and new materials such as bioplastics made from biodegradable materials.”
Charlie Thomas, manager of Jupiter Green Investment Trust said: “When it comes to finding opportunities, we look for tipping points
which are typically unpredictable and lead to a change in policy. For example, the documentary series Blue Planet has tipped the public
perception of plastics. While images of marine life surrounded by plastic waste is emotive, what we think is different this time and will keep this issue at the fore are the health implications, which will make policy makers pay attention.
“The trend is that environment is becoming a more mainstream issue. When I took over the helm of Jupiter Green in 2003, we identified 312 environmental solution companies. In 2018, there are around 1,200, emphasising how much this space has expanded and become
mainstream.”
Richard Crawford, manager of The Renewables Infrastructure Group (TRIG) said: “Investment companies like TRIG are investing in clean electricity generation. This is a growth sector not only as we strive to combat climate change but also as falling costs make
renewables one of the cheapest forms of generation. To add to this, its non-reliance on imported fuels makes it one of the most secure
forms of generation. As well as decarbonising industrial and consumer energy currently met by electricity, this looks likely to extend into the transport sector with electric vehicles.
“Given the momentum in the sector, we can expect to see continuing attractive investment opportunities in this space.”
Philip Kent, director at GCP Capital and lead adviser of GCP Infrastructure said: “The Climate Change Act is 10 years old this year,
having set out binding obligations on the government to reduce carbon emissions to 80% of a 1990 baseline by 2050. This has prompted the implementation of support mechanisms that have led to significant growth in renewable electricity generation. Renewables accounted for 30% of the UK’s total electricity generation in Q1 2018 and GCP Infrastructure has invested over £620m across wind, solar, biomass and hydro technologies.
“Whilst government support for new renewable electricity has largely fallen away, current areas of support include renewable heat and clean transport. There remains more to do in these areas, with the Climate Change Committee recently reporting net increases in emissions from transport and only minor reductions in farming emissions in the period from 2012 to 2017. The competitive tension between energy cost, security of supply and the green agenda will continue to challenge support mechanisms targeting all forms of renewable energy.”
Chris Tanner, director of John Laing Capital Management, manager of John Laing Environmental Assets Group said: “As an
investor in environmental infrastructure, we hold a diversified portfolio of assets that capitalise on a range of opportunities. These include generation of renewable electricity, recycling and resource recovery from waste, treatment of wastewater and the use of renewable heat. Although regulatory change can impact new projects, we deal with this by investing in established projects that are less exposed to such changes.”
Delivering for shareholders
Ricardo Pineiro, Partner at Foresight Group, Manager of Foresight Solar Fund Limited said: “As both developed and emerging economies are transitioning their energy systems away from traditional fossil fuel-based energy systems, Foresight Solar Fund Limited (FSFL) is at the forefront of that transition, investing in ground based solar generation assets.
“FSFL takes a disciplined approach to investments, acquiring only those assets that meet return requirements on a risk adjusted
basis. We target assets which strengthen the fund’s diversification which can be by geographical location, panel manufacturer and
Engineering Procurement Contractor / Operations & Maintenance counterparty, and last year acquired our first overseas assets –
four sites of net 146MW under construction in Australia.
“ESG considerations are incorporated into all our investment processes and asset management procedures. Together, this disciplined approach to investment has seen FSFL meet all dividend targets since IPO in 2013, and we are currently on target to deliver an annual dividend of 6.58p per share in 2018”.
