A $30 trillion climate of opportunity
While the world has been preoccupied with a certain virus another epidemic has emerged alongside it: the accelerating rush among nations and corporations to announce carbon reduction targets to address climate change. This paper outlines Munro’s approach to what we see as the biggest investment opportunity since the advent of the internet.
- Accelerating global momentum on climate change has seen many nations setting ambitious carbon reduction targets
- Much of the corporate world is seizing the initiative on climate independently from the government
- Many climate-related technologies are in their infancy and thus have significant long-term growth potential
- As with the technology boom, the climate revolution will produce a handful of enduring winners but also many losers
Although global momentum around climate change has been building for many years, Munro believe they’ve now reached a tipping point whereby the de-carbonization of the planet is inevitable. China and virtually every European country have effectively committed to eliminating net carbon emissions by 2050. US President Joe Biden appears determined to reinvigorate the climate agenda, recently announcing that the US will target a 50% reduction in net greenhouse gas pollution by 2030 and zero emissions by no later than 2050.
It’s important to note that the “zero carbon” 2050 target does not mean emitting any more carbon; it means emitting no carbon.
The biggest investment opportunity since the internet?
Last year, global investment in the transition to low-carbon energy broke the $500 billion barrier for the first time and was more than twice the 2010 total, according to figures from BloombergNEF. Munro designated climate change as a new Area of Interest (AOI) in their funds strategies in 2019 and then again in October 2020 as increasingly important in the Covid era, seeing climate-related investment and only likely to accelerate from here. In many ways, Munro liken its current state to the early stages of the technology boom, with many climate change companies set to get dramatically bigger. However, funding this climate epidemic is going to be extremely costly. Given the ambitious carbon goals now being announced, Munro think it will cost over $30 trillion US dollars between now and 2050 and have provided their estimated breakdown of where this huge investment will need to be made, and thus where the sectors of opportunity exist. In Europe alone, Munro estimate an $8.3 trillion USD investment potential across areas such as renewables, energy efficiencies and charging stations for electric vehicles.
Given the ambitious carbon goals now being announced, Munro think it will cost over $30 trillion US dollars between now and 2050.
How Fintor plans to access this opportunity
Fintor is currently investigating a number of specialised fund managers who focus on selecting investments that will benefit from the transition to zero emissions and which are most likely to continue or improve their current growth trajectory. Importantly, this investment landscape covers a huge amount of industries and ideas, everyone is affected, and Fintor’s belief is that there will be investment opportunities within rules-based exchange-traded funds (ETF) and specialised active managers. It is important to note that Fintor expects the sector to rapidly evolve with past winners becoming losers as new technology becomes available. Therefore, Fintor believes that a passive approach to access these opportunities may not be the best option, however, Fintor is awaiting the release of a rules-based ETF that provides protection against holding the losing companies that will inevitably occur in a broad-based index investment. For now, Fintor is considering a number of active managers and is awaiting our independent research teams to assess the quality of each fund. Fintor is also looking for a manager who aligns to Fintor’s belief that there will be a few sectors that will see the majority of investments and which have a proven expert team to manage the inevitable changing landscape. The sectors Fintor believes will see the majority of investment include:
- Clean energy
- Energy Efficiency
- Clean Transport
- Circular Economy
Fintor’s top pick
Fintor’s team recently attended a very detailed and impressive seminar run by Munro Partners who feature heavily in our portfolios. Nick Griffin and the team at Munro continue to impress and are at the forefront of research into investment opportunities in this segment. The ideas have also played a large part in the Munro Global Funds’ success. Munro has launched the Climate Change Leader Fund which Lonsec have recently rated as “recommended”. Fintor is now in the process of considering this funds entry into the Capital Growth objective model portfolios.
A Great Source of Information
Munro Partners have released a white paper on the opportunities that are present in the race to zero emissions.
The Investment Case for climate – hear from Munro’s Chief Investment Officer, Nick Griffin – 3 minute video