Three green themes for the coming years

Mirova's Suzanne Sellenart shares how investors can support the transition from fossil fuels to renewable energy

As Covid-19 spread across the globe this year, it not only sparked a major health crisis, but also threw countries into economic turmoil and raised deep questions about the effectiveness of the world’s current economic model.

The double impact of the crisis on both the health of the population and on the health of economies worked to quickly expose the social cracks that existed long before the pandemic struck. Inequalities in wealth, opportunity, and support were thrown into sharp focus as the impact of the pandemic and national lockdowns hit.

See also: – Editor’s reflection on 2020: The world has changed forever 

However, for many European nations, this negative disruption has been viewed as a sign of the great need to develop a more sustainable economy as well as the chance to shore up a green recovery once the crisis abates.

It signals a key opportunity to ride the oncoming wave of green innovation likely to take hold across the world. Sustainable, renewable projects that support a move away from the intensive use of fossil fuels for energy will be where the next generation of technology lies.

For an investor, this offers the chance to invest to support and accelerate the transition towards renewable energy, while balancing the need for strong financial performance with their social and environmental impact. Focusing on finding these ‘next-gen’ tech heroes that will help build a new green economy will be crucial for investors in the coming years.

Three major green themes

Developing fossil fuel alternatives:

The first of the green themes shaping the investment opportunity is all about energy, energy, energy and the key question of how to free ourselves from an addiction to fossil fuels. The first revolution, renewable energy, has been consolidated and has already gone some way in addressing this. The next transition will be in clean transport. This change will revolve around the electrification of vehicles which will in turn create a critical demand for batteries, but also for the effective storage of the energy needed. The rise of companies such as Tesla into tech giants is a clear acknowledgement of the future need for electric vehicles.

A lesser-known revolution is in hydrogen power. This is where real change can be implemented to reduce carbon emissions. Heavy mobility vehicles, such as trains and big trucks, cannot realistically be powered by batteries, yet they are responsible for a large chunk of carbon emissions from road vehicles. However, with the leaps forward in hydrogen power, running heavy-duty vehicles on a cleaner form of fuel could be a reality. 

Improving real estate:

It’s not just innovation that matters, however. There is also an opportunity for the investor in terms of the reduction of carbon emissions and here, real estate will be a key factor. One third of emissions comes from buildings, but it is not just about building new ones to replace them. Old building stock needs to be renovated and the European Union (EU) has devoted a special allocation to ensure this happens, which will also mean the creation of new jobs.

Building a ‘circular economy’:

Finally, there is the circular economy. Here the focus is on how to reduce dependence on raw materials, to promote recycling and reusing materials in order to better preserve natural capital. The EU is planning to ban the use of single-use plastics, but is also pushing companies to recycle and create their own bioplastics, creating a positive ‘circle’ where waste and emissions can be cut.

So, how can investors look to take advantage of the opportunity in the green revolution? There are companies that are innovating in the space of the ‘eco-business‘, although this could be summarised as the search for green technologies. The starting point is searching for the innovative ideas, whether they be products and services, in the space of biodiversity preservation, natural capital or scarce resources. It is also important to look for companies with structural growth, an understandable competitive advantage and an innovative and disruptive offer. It’s a rapidly changing universe, with new players coming in all the time.

Investors should also search for high quality stocks; companies where we have a high degree of confidence in the management team and its balance sheet. One example is Solaria, a Spanish renewable energy company that has joined the Ibex-35 this year after several years of triple-digit increases. In 2020 alone, its share price has risen more than 200%.

Solaria is just one example. The development of a green economy is already underway and we expect to discover many more strong opportunities in this space in the coming years for the good of investors, and the projects we support with capital to ensure a sustainable transition away from damaging fossil fuels.

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Natalie Kenway

Natalie is global head of ESG insight for ESG Clarity and has been an investment journalist for 16 years. She won Editor of the Year at the Aviva Investors Sustainability Media Awards 2021, and was Winner...