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How to profit from the climate change fight

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Following Donald Trump’s decision to withdraw the US from the Paris climate agreement, we look at the impact of this discussion and how investors can tap into the wider climate change theme.

President Trump’s decision last week to follow through on his election pledge and withdraw from the Paris climate agreement has been well signalled over recent months.

Despite this, Charlie Thomas, manager of the Jupiter Ecology fund, still described the decision as disappointing, “if not dubious”, given the focus of Trump’s reasoning was one of protecting US jobs.

“Given the pace of progress we have seen in low-carbon solutions, from electric vehicle technology to renewable energy generation, our inclination is that this decision, if anything, puts US job creation under greater pressure in the long-term,” says Thomas.

Taking the view that the climate change accord is positive for the planet over the long-term, Thomas Sørensen, manager of the Nordea 1 – Global Climate and Environment Equity fund, described the withdrawal of the US from the deal as a “blow”. However he adds that political support is only one of the drivers of this “mega trend”.

“Trump aside, we remain convinced the world is witnessing a revolution in attitudes towards the climate and environment – with corporates at the forefront of this change,” he says.

“The economic incentive for both consumers and corporates to invest in climate solutions is significant. This is not only true for the renewable energy sector, but for a wide range of investment areas.”

This, says Sørensen, is because companies across the globe are setting ambitious targets to save energy, materials and resources – as there is an overwhelming understanding that increasing sustainability is vital in order to remain competitive in the future.

“Investor perception has also changed in recent years,” he says. “The notion that environmental benefits and good economic returns cannot be achieved at the same time has been well and truly dismissed. Despite this, the impact of climate and environment as a driver of company cash flows remains under-researched and underestimated by most market participants.”

How to access the climate change theme

Adrian Lowcock, investment director at Architas, says from an investment perspective it forms a small part of ethical investing, a sub-sector theme. However at the same time, he adds that it seeps into mainstream investing.

“Companies are becoming more aware of the social responsibility and brands which can be associated with positive action are well received,” says Lowcock.  “This means that climate change investing is not just a case of buying small companies with only a focus on climate change but can include larger businesses and companies looking to profit from new ways of doing stuff.”

In terms of specific funds, Lowcock highlights two; Jupiter Global Ecology Growth (also managed by Charlie Thomas) and Pictet Global MegaTrend Selection.

“Formerly called Jupiter Climate Change, Jupiter Global Ecology Growth has a long-term capital growth through investment in companies that are responding positively to the challenge of environmental sustainability and climate change,” he says.

“The fund has changed name to reflect the significant expansion of companies available to invest in with climate change being just one of these themes. Firms have now sprung up across the globe offering innovative solutions to a broadening range of environmental issues including energy efficiency, water infrastructure, waste management, sustainable food production and pollution and environmental control services. Jupiter has a lot of experience investing in the environmental sector.”

While Lowcock says the Pictet Global MegaTrend Selection fund does not have specific ethical requirements, it instead looks to invest into eight long term Megatrends, many of which are closely linked with the dominant long-term ethical themes.

“Megatrends are described as those global developments which will have a profound effect on the progress of human civilisation over the coming decades,” he says. “These themes include water, clean energy, agriculture and environmental stocks. Manager Hans-Peter Portner invests across a range of sub funds, each of which is individually managed by sector specialists.”

For investment purposes Jupiter’s Thomas says he is closely monitoring the dynamic within the US and how it may impact companies focused on developing sustainable solutions to the ever increasing pressure on the planet’s natural resources such as water, land and energy.

“We can take as an example the US Federal Fuel economy standards, a key mechanism for de-carbonising US vehicle fleets and by extension, a structural driver for opportunities in sustainable transport technologies and services,” he says.

“President Trump has signalled an intention to weaken the standards set under the Obama administration. However, in practice the largest state for car sales, California, has the right to set its own standards under a unique right to waiver. Currently 12 other US states also follow California’s efforts to support zero-emission vehicle sales – collectively representing over one-third of the total US vehicle market.

“With many US states and city mayors increasingly determined to reduce harmful emissions, this is a powerful mechanism and signal to the wider market.”