Climate Assets monthly update: Investment themes piquing our interest for 2023
Date: 15 December 2022
The urgent need to tackle climate change, the Russia/Ukraine conflict and the energy crisis added to the complexity of climate negotiations at COP27 this year. The scale of the challenge in tackling climate change is enormous and will take not only globally concerted efforts, but many years to achieve. Therefore, it is unreasonable, in my view, to expect ground-breaking strides forward at every annual event.
While COP27 drew some understandable criticism, there were reasons for optimism, such as the creation of a “loss and damage” fund as well as plans by, Simon Stiell, recently appointed United Nations climate chief, to shake-up the annual summit to ensure a greater focus on transparency and delivering results going forward.
What lies in store for 2023?
Away from COP27, we are now in the final month of what has been a challenging year and attention is naturally drifting towards what lies in store for 2023. We are cautiously optimistic heading into the new year and believe there are many attractive long-term investment opportunities on offer, with the energy transition, the electrification of the car and healthcare after Covid-19 three key themes on our radar. Underpinning the investment opportunities across these themes, and other significant areas of our interest, is the changing regulatory landscape and we are acutely aware of its importance in the investment process and in avoiding the folly of greenwashing.
Energy has been front and centre of many discussions this year and we believe the energy transition will continue to be one of the key themes of 2023. Momentum is clearly building in the transition to net zero and there is no disputing the continued growth in renewables. Take wind power for example, with total global capacity additions estimated in the region of 110GW per annum through 2027, there are many areas of quality growth to be unveiled by investors like us. Thus, we continue to focus on the value chain to identify players with consistent returns and underappreciated growth potential. Our in-house Renewable Energy Analyst, Yeit Lee, gives his views on the energy sector and opportunities going forward.
The electric revolution in transport is in full swing and economies of scale continue to develop. However, near-term risks have arisen surrounding supply chain disruptions, weaker demand due to a slowing economy and higher raw material prices. That said, we still see investment opportunities across power electronics and automation to improve energy conversion, efficiency, and car performance as well as EV charging infrastructure. Mamta Valechha, our Consumer Discretionary Analyst, shares her latest thoughts on the sector.
The greatly reduced impact Covid-19 has on everyday life for most people has been one of the bright spots of 2022. Recent years have seen a huge amount of interest in vaccines to protect against the virus and treatments to mitigate its impact, but the World Health Organisation has said the end of the pandemic is near. As data becomes a resource to protect and to leverage from, patients’ information is more precious than ever, and healthcare and data management are offering great opportunities for efficiencies. Our in-house Healthcare Analyst, Sheena Berry, offers her opinion on what the post-pandemic world will look like.
Regulators continue to clamp down on greenwashing among the fast-growing sustainable investment industry. In Europe, many fund managers, including Axa and Blackrock, needed to reclassify funds from Article 9 (highest sustainability designation) to Article 8 (less demanding and broader classification). In the US, Goldman Sachs agreed to pay a US$4m penalty over US regulatory charges that the bank’s asset management division misled customers about ESG investments.
Closer to home, whilst the final version of the FCA's Sustainable Disclosure Requirements (SDR) is not expected until June next year, a recently released consultation paper introduces a set of 'sustainable categories' for funds to demonstrate alignment with one of three defined approaches to sustainable investment. Personally, I very much welcome this development, as it will help clients and advisers alike distinguish between funds with a credible approach to sustainable investment and those without.
Whilst a few changes to the proposal are still expected, I feel confident that our approach to sustainable investment fits very well with the proposed, yet to be confirmed, ‘sustainable focused’ category introduced by SDR. Our Sustainable Investment Specialist, Toby Rowe, shares his latest thoughts on upcoming regulatory developments.
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Climate Assets Funds
The Climate Asset Funds invests in companies that make a positive contribution to the world, with a strong underpinning of ethical values.