The world is at a tipping point as far as climate change is concerned. Research released in early 2020 by NASA – the United States’ National Aeronautics and Space Administration – and the National Oceanic and Atmospheric Administration, for instance, said 2019 capped the hottest decade in recorded history. Further, the World Meteorological Office said last year was one of the warmest since 1850, and has cited rising carbon dioxide concentrations in the atmosphere despite Covid-19.
Such overwhelming evidence of the magnitude of the climate problem has put the need to act at the top of the global agenda.
In fact, 2020 heralded the most significant commitments yet to tackling these escalating challenges. Accelerated by the pandemic-inspired pivot towards environmental solutions and technologies, in part to stimulate recoveries, the five largest economies – the US, China, the EU, Japan and the UK – have taken key steps in recent months towards a low-carbon future. Within Asia, for example:
- China has vowed to achieve “net-zero” carbon emissions by 2060
- Other fossil-fuel-reliant economies like Japan and South Korea have committed to carbon neutrality by 2050
- In Singapore, meanwhile, the 2021 Budget speech outlined the national Green Plan 2030, to foster a green, liveable and sustainable place to live
Achieving such a bold drive to decarbonise will clearly require a radical reconfiguration of the key economies towards more sustainable ways of producing and consuming.
In turn, this demands substantial investment in green infrastructure, solar power and other clean energy, electric vehicles (EVs) and carbon-capture technologies. Even just to limit temperature rises to 1.5 deg C will cost around US$2.4 trillion per year from now until 2035, forecasts the United Nations Intergovernmental Panel on Climate Change.
Investing in a low-carbon journey
While easier said than done, this shift in focus towards a low-carbon global economy will create multi-year growth opportunities for businesses that enable the shift.
A growing number of investors are acting on these already. For example, just in the fourth quarter of 2020 in Asia, Morningstar, a data provider, reported a record US$5 billion (S$6.7 billion) in capital flowing into funds which target sustainability themes. This boosted total assets directed at environmental, social and governance (ESG) investments to US$25.4 billion by the end of 2020 – an increase of 131 per cent over the previous 12 months.
“We see growing demand for green funds from investors in the region, as well as encouragement from governments to support robust green and sustainable focused fund strategies,” emphasises Mr John Cappetta, head of private banking, Asia Advisor at Ninety One.
Amid this demand, the three main pathways to a low-carbon future are renewable energy, electrification and resource efficiency.
In particular, boosting renewable power capacity reflects awareness of the need for a complete change in how we generate electricity. This involves moving away from fossil fuels towards renewable sources of energy such as wind and solar. This is being spurred by innovation and falling production costs – new technology is increasingly making solar and wind energy cheaper than fossil-fuel sources.
At the same time, greater electrification is essential, including an overhaul of ground transportation, to create more autonomous and efficient options that, ultimately, reduce the need for internal combustion engines in favour of self-driving EVs powered by renewable energy.
In terms of better ways to use resources, meanwhile, since around 30 per cent of greenhouse gas emissions come from buildings, greater efficiency in this area is critical to decarbonisation. This is boosting demand for insulation among many other domestic and industrial products and processes.
Going green with a focused approach
To capture these investment opportunities, the Ninety One Global Environment Fund is a global equity strategy that targets those companies driving the low carbon transition.
This involves a highly selective approach to find businesses with structural growth, sustainable returns and competitive advantages in decarbonisation. Companies that meet these criteria tend to share several traits:
- They are typically within the industrials, utilities, energy, technology, materials, chemicals and automotive sectors
- They exist across the value chain – from makers of components to service providers to end‑product distributors
- About half have market capitalisations under US$2 billion
- Almost one-third are in China
The Ninety One Global Environment Fund is managed by an experienced, dedicated team committed to environmental change. The fundamental bottom-up analysis of the decarbonisation investment universe creates a highly differentiated and diversified portfolio. To further sharpen the sustainable lens of the fund, ESG factors are fully integrated into the investment process.
In short, the Ninety One Global Environment Fund aims to ensure any holding in the portfolio will tick the boxes of doing good plus generating long-term returns, explains Mr Cappetta.
“This is not a short-term tactical investment fad,” he adds. “Investors are eager to find value in companies that are less well-known by the market but can provide attractive returns in the long term.”
*Ninety One received regulatory approval for the Global Environment Fund in Singapore late last year, following its earlier authorisation in Hong Kong.
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This document is for information and general circulation only. It does not have regard to the specific investment objectives, financial situation and particular needs of any specific person who may receive it. Past performance is not indicative of future performance. The value of the shares in the Fund and the income accruing to the shares, if any, may fall or rise. The Fund may use or invest in financial derivatives. Any opinions stated are honestly held but are not guaranteed and should not be relied upon. It does not constitute investment advice, or an offer to sell, or a solicitation of an offer to buy any security, investment product or service. Potential investors should read the details of the Prospectus before deciding to subscribe for or purchase the Fund. Investment involves risk. Please refer to the Singapore Offering Documents (including the risk factors set out therein) and the relevant Product Highlights Sheet for details which are available at your bank and financial advisor. For more information, please contact your bank and financial advisor. Investors may wish to seek advice from a financial advisor before making a commitment to purchase shares of the Fund. In the event that an investor chooses not to seek advice from a financial advisor, he/she should consider carefully whether the Fund in question is suitable for him/her. Informational sources are considered reliable but you should conduct your own verification of information contained herein. In Singapore, this document has not been reviewed by the Monetary Authority of Singapore. Issued by Ninety One Singapore Pte Limited (Co. Reg. No. 201220398M).
