Claudia Quiroz is Lead Fund Manager of Quilter Cheviot’s Climate Assets Fund, which is a fossil fuel-free strategy investing in the growth markets of sustainability and environmental technologies. As sustainable investing moves up the agenda of both governments and investors, Claudia looks back on how sustainable investing has changed over the past 20 years, and how she made the leap from chemical engineer to investment manager.
I started down the path of sustainable investing twenty years ago, when the world was a very different place. Wind farms and solar panels were only just beginning to appear on a large scale. Back then many people were still debating if climate change was man-made or the result of nature. Some people were more worried about the depletion of fossil fuels and running out of commodities like oil.
Overall, there was a growing concern over climate change and its impact on energy security, flooding and agriculture. But climate change was mainly due to energy usage in the developed world. Today we need to take into account the impact of urbanisation and rising living standards in the developing world. We were worrying about the environmental impacts of just over six billion people on the planet back then; now we have to think about the effect of 7.7bn, 70% of whom live in cities.
Twenty years can see an incredible amount of change and that has definitely been the case in my own specialist field, sustainable investing. Our ability to invest in projects, which improve our environment and humanity’s collective welfare, has increased dramatically. While sustainable investing has sometimes been seen as the poor cousin of the investment world in the past, we are now witnessing a significant change in the investment landscape and the general public’s interest in this space.
More and more people are interested in investing in companies that support a sustainable economy by delivering clean water, waste management services, rural connectivity to the electric grid, and other initiatives. We probably have Al Gore’s Inconvenient Truth and, more recently, David Attenborough’s Blue Planet to thank for raising awareness.
What was sustainable investing like 20 years ago?
It seems strange to think that companies weren’t as concerned with their green credentials 20 years ago as they are today. But that doesn’t mean that nothing was being done. My first job after university (in Argentina, where I studied Chemical Engineering) involved investigating leakages and improving water use across chemical processes.
This wasn’t motivated by environmental concerns; the company simply wanted to minimise waste and save money. That is very different today, pressure from regulators and stakeholders has encouraged companies to become more environmentally friendly for, rather than just mitigating the effect of their operations. We are trying to make a positive difference when we talk about sustainable investing.
When I first started in investment management, working for a socially responsible investment research provider, the investable universe was quite small and thus making money was much more challenging. Nowadays the investment universe has expanded beyond from the traditional sectors like water utilities and renewable energy.
I think the early experience of investing in the renewable space put off many investors. A lot of the projects that came to market in the 2000s suffered from cost over-runs and other operational issues. In addition, there were changes in regulation, such as feed-in tariffs, and increased competition from Chinese manufacturers which hurt European and North American companies, for example in the solar panel industry. That left a sour taste and bad reputation for the sector.
If I look back two decades, there are of course ideas that have not really lived up to the initial excitement around them. Perhaps the best example is fuel cell technology. There are some examples of it in use today such as electricity storage to power small hospitals. Many buses in London are powered using hydrogen fuel cells. However, fuel cell manufacturers have often suffered from a lack of pricing power and hence low profitability.
What does the future hold for sustainable investing?
In some senses, this is the most exciting part of my career. We are really just at the start of what environmental technology can do, particularly in transportation. The electric car has come a long way; by 2035 sales of new petrol and diesel cars will be banned in the UK. Driverless technology is more suited to electric vehicles than the internal combustion engine. I am personally intrigued by the hyperloop technology which could replace kerosene-fuelled jet plane travel across large land masses such as America, Europe and parts of Asia. Hyperloop could reduce our usage of fossil fuels and reduce travel times.
It’s not just about the technology though, we are seeing a much bigger push from the general public for sustainability. Consumers are demanding a lot more from companies, whether that’s sustainable sourcing of products or fair wages for the workforce. Also, demographics are a much bigger challenge now; how do we meet demands to address higher living standards across countries like India or China without overburdening the planet?
Nevertheless, the broader themes behind sustainable investing – fighting climate change, tackling water scarcity and so on – have largely been consistent over the past two decades. We’ve known about the problems for a long time and have been addressing them with renewable energy, desalination technologies, and increased energy efficiency.
The universe of investment opportunities has also evolved. While data management and security is not specific to sustainability, it is becoming an increasingly important theme in our fund. You need data for a lot of what humanity is trying to achieve in terms of sustainability, whether that’s the data from smart metering to monitor water consumption or managing fertiliser usage when growing crops.
A sustainable future
For a long time, people saw sustainable investors as tree huggers rather than investment managers. I’m pleased to say that perception has now changed significantly, particularly with the kinds of returns a sustainable investing strategy has generated over the past decade. It has taken a while for people to understand that the same financial rules apply to a sustainable investment portfolio as to a traditional one. The important thing is that change is now happening and people have become comfortable with sustainable investment and thus willing to vote with their wallets.
While there is clearly some short-term uncertainty regarding the COVID-19 outbreak and the implications for the economy, I think the longer-term trends behind sustainable investing remain firmly in place. In an article from a couple of years ago, Jeremy Grantham, one of the world’s foremost investors, referred to our increasing demand for resources and need to protect the planet as the ‘race of our lives’. A failure to win this race could lead to a much worse environment for humanity. The good news though, is that we can win the race as much of the technology is being developed or currently in place. We just need to fund its deployment.
Author
Claudia Quiroz
Head of Sustainable InvestmentI lead the sustainable investment team at Quilter Cheviot, dedicated to serve clients who would like to invest in companies offering solutions to the economic and environmental problems of urbanisation, climate change and resource scarcity.
Responsible investment
At Quilter Cheviot we see responsible investment as a process that analyses ESG data to help inform investment decisions and to ensure that all relevant factors are accounted for when assessing risk and return.