A world of opportunity in environmental solutions
Noelle Guo, Senior Equity Analyst, explains the range of opportunities available to investors in environmental solutions, as companies from a diverse spread of sectors seek to tackle climate change and the need for natural capital restoration.
As environmental solutions investors we have a dual investment mandate. Firstly, and very importantly, like any investment strategy we are trying to generate attractive total returns for investors, in our case through long-term capital growth.
Secondly, our pathway to seeking that growth involves trying to pick the potential winners from a limited (but growing) investment universe of listed companies providing solutions to generate real world positive outcomes that tackle environmental problems, through for example climate change mitigation/adaption or natural capital restoration (e.g., biodiversity, forests, clean water/soil/air, etc).
A thematic investment strategy like this is by definition constrained to a sub-set of the total global investment universe, but the breadth of opportunities out there is very wide. Just some examples include the entire length of the supply chains around electric vehicles (and not just electric road vehicles, but other low carbon transportation methods like trains too), clean energy (including the infrastructure necessary to store and transmit that energy), efficient and innovative ways of recycling virtually anything as part of an emerging ‘circular economy’, or even entirely new technologies such as a much lower-carbon alternative to the current cement production process, to name just a few. Each of these areas has compelling long-term growth opportunities for the most successful companies to capitalise upon.
When we say ‘long-term’ in this context, we really do mean it! This is multi-decade opportunity, largely because the problems these solutions seek to address will take many decades to solve, including the need global collaboration which rarely moves at the pace that experts in these fields would like. Yet investors rightly expect the prospect of appealing investment returns on a timescale shorter than “a few decades from now”, which is why our main (although not exclusive) area of focus is on companies that already have a viable commercial solution that is already generating revenue, as opposed to pure ‘blue sky’ technologies.
It is also worth remembering that different parts of the environmental solutions universe are at different stages of maturity. Technologies such as wind and solar, for example, are now mature and the main opportunities surround efficient and effective scaling up, while other technologies are extremely nascent (such as the decarbonisation of heavy industries, or lab-grown meat). There is huge potential for innovation and long-term growth for the winners.
All this adds to the diversity of investment opportunities available to environmental solutions investors, leaving it up to active investment managers to select what they believe to the best from the available universe – although it is important to remember that, as with all stock market investments, an investor’s capital is at risk and the value of investments can fall as well as rise.
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
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