Environmental investing themes to watch for 2020
Despite a volatile time for markets, the last year, and indeed decade, has been one of significant growth for impact investing. More opportunities have become available for investors looking to generate a positive environmental impact alongside strong returns.
As we enter a new decade, the devastating impact of climate change on our environment continues to become ever more apparent and finding solutions in the years ahead will be vital.
We highlight a number of important themes for investors, both existing and maturing, along with new emerging ones, which are just beginning to develop.
Electric Vehicles (EV)
With a range of manufacturers bringing new EV models to market in 2020, the expectation is a rise in consumer demand.
Falling technology costs and rising performance will assist here, as well as growing awareness of future sales bans for new diesel and petrol cars (eg. 2025 for Norway, 2040 for UK but with pressure on government to bring that forward to 2032). The increase of EVs on the road should in turn lead to increased investment in charging infrastructure.
Whilst it is too early to see who the winners are in the manufacturing space, there are plenty of opportunities to invest in companies that produce the components and technology required for producing electric vehicles.
The Industrial Internet of Things
The evolution of ‘Smart’ technology to help reduce energy waste in industry is presenting some interesting new long-term investment opportunities. So much more than talking kettles and fridges, the industrial internet of things, where objects and devices are embedded with sensors, software and network connectivity, means we can now collect and analyse data that can be used to pinpoint areas of efficiency.
For example, machines that signal when they require maintenance, preventing drops in productivity, better product design and more connected, efficient manufacturing can vastly reduce wastage rates, whether that is in a factory or on a construction site.
It is early days for this theme, which we expect to grow in the decade ahead. Industry will increasingly take up this new technology to make energy savings and the software providers will respond. We also see opportunities for investors in software stocks that are providing these ‘smart’ services through a subscription model.
A developing theme that will grow increasingly in importance over the next decade is ‘fast fashion’, which will provide opportunities in the near-term for companies that produce materials which are more ecologically friendly than cotton and fossil-fuel derived materials.
The falling cost of textiles, and the explosion of fast fashion in recent years, have created a ballooning – but largely overlooked – environmental impact. According to the European Environment Agency (EEA), textiles represent the fourth biggest source of pollution after housing, mobility and food. Fast fashion has had a devastating impact on the environment, from the volume of water used to produce goods, to the amount of fabric that ends up in landfill or is incinerated.
A study expected from the EEA in early 2020 will put pressure onto the fashion industry and government to promote clothing recyclability and producer responsibility which should lead to further innovations and investing opportunities in this area.
Jon Forster is co-manager of Impax Environmental Trust plc