Here at Investing Ethically, we have been speaking with fund managers about their environmentally focussed funds. It was noted that companies are paying far more attention to environmental issues from a risk perspective than some governments currently are. In addition, local people and Non-Governmental Organisations are increasingly unwilling to sit on the side-lines while their air, water and soils are contaminated.
It’s reassuring to see that environmental and resource efficiency investment markets are expanding rapidly as can be seen from the increasing number of funds available to UK investors. Returns over the last year have been very attractive and this is despite President Trump campaigning as a pro-coal, anti-regulation and climate change sceptic. The issue of the direction of environmental markets, and who is going to take the lead, has really come to the fore.
Environmental investment markets are highly diversified worldwide, and investors should take a global view in their assessments. The response from the international community to Trump’s pre-election threat to “cancel” the 2015 Paris Climate Agreement has been to redouble support for the climate treaty, with China, crucially, reiterating its commitment to leading the development of policy to reduce carbon dioxide emissions and control pollution.
We have seen that renewable power is increasingly able to compete, unsubsidised, against natural gas and coal-fired production. In fact in the UK, onshore Wind Power generation is now the cheapest form of energy generation according to Bloomberg research. Also, according to Impax Asset Management last year, the number of Americans working in solar energy overtook those employed in oil and gas extraction!
Recent global and local reports on poor air quality and its wider impact on human health is also fuelling the move towards cleaner technology. Governmental legislation is slowly backing this up by moves to restrict traffic in city centres, tighten regulations surrounding energy efficiency of buildings and instructing car manufacturers to reduce emissions to name but a few.
So what does the future look like? Despite the negative rhetoric from President Trump around climate change there are some positives. If a business-friendly administration is prepared to put economic pragmatism ahead of the ideological preferences, it is likely to recognise – and reward – the economic potential of environmental markets. Investor activism and public sentiment as well as increasing corporate reporting and transparency also play their part.
The rising global demand for products and services solving environmental problems is set for sustained growth. Returns from funds investing in environmental markets have been significant over the last year with many funds (incl Impax, Henderson, Jupiter and Pictet funds) returning 25%+ over the last 12 months (to end of February 2017) and whilst it is unlikely this level of return is sustainable every year, investors should be confident that the underlying investment thesis for environmental markets remains compelling for the foreseeable future.
Where quoted, past performance is no guarantee of future returns.