How can investors benefit from climate change action?

With the UN Climate Change Conference under way in Paris, Simon Webber discusses how investors can benefit from the drive to reduce global greenhouse gas emissions.

8 December 2015

Simon Webber

Simon Webber

Lead Portfolio Manager

China climate progress

December’s climate change negotiations are expected to result in the most significant international agreement yet about how to reduce global greenhouse gas emissions.

The most important thing to focus on is the extent to which countries are willing to push themselves to “stretch” reduction targets and show a serious commitment to the cause.

Another key outcome of the talks will be the mechanism to review countries’ mitigation efforts every five years to ensure that emissions goals are constantly evolving to keep global reduction targets on track.

Tackling pollution

Encouragingly, we have seen some good momentum for change from the world’s largest emitters, the US and China.

China is making some progress in heading down a cleaner path by, for example, committing to tackling air pollution in its major cities while US companies are leading the charge in creating some of the technological solutions we will need for a greener world.

Clean energy investment

For example, companies like Alphabet and Apple are setting their minds to developing innovative ways in which to solve the global emissions problem.

Specifically, both are investing in clean energy technology such as electric vehicles, which have the potential to cause major disruption in the auto industry, a sector that is a substantial contributor to greenhouse gas emissions.

This can only be a good thing. Improvements in battery technology and lower battery storage costs are helping drive a shift to the electric vehicle, to the benefit of Tesla, which has seen its share price rise by more than 90% (annualised) since the end of 2012.

Smart homes

Another field that Alphabet is focused on is home automation, an area with considerable efficiency potential, given current significant waste in lighting, ventilating and heating empty rooms.

Wind and solar power are also becoming far cheaper across the world, which should have a meaningful impact on the demand for these renewable energy sources and by extension, companies exposed to this theme.

The Paris climate change talks are shining the spotlight on the urgent need for the world’s economies to reduce their greenhouse gas emissions.

Fossil fuel reduction

In order to do this, there needs to be considerable focus on reducing the amount of oil, coal and gas that is being burned and therefore more investment in areas such as renewable energy and energy efficiency technology.

For investors, this presents a significant opportunity: we believe that new technology that can help us use less fossil fuel will be the growth engine of the future.

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