Investing in climate innovations

Written by Campe Goodman and Tara Stilwell on 9th Dec 2021

This article is an excerpt from the Good Investment Review October 2021, from Square Mile Research and Good With Money.

Did you know?

  • Renewables are expected to meet nearly 30 per cent of power demand by 2023.
  • Efficient production and use of materials could help cut emissions of carbon dioxide (CO2) by 25 gigatons.
  • In 2017, 92.1 billion tons of material were consumed globally.

Climate change in the news

Climate change has been dominating conversations again, given the recent headlines about widespread flooding and wildfires and the release of the latest report from the Intergovernmental Panel on Climate Change. We see growing numbers of companies looking for capital to provide solutions and of investors eager to help fund them.

Impact investing targets the stocks and bonds of companies and other entities which are helping to tackle the world’s major social and environmental challenges. Many of these enterprises contribute to environmental sustainability and help society better prepare for climate change. Here, we share some of the environmental and climate-related innovations we are seeing across the impact investing universe.

Alternative energy

In our view, the global energy infrastructure needs to evolve to support the transition to a low-carbon economy. Alternative energy sources like solar, wind and hydropower help to reduce emissions of greenhouse gases (GHGs) and slow
the global rise in temperatures. They also contribute to better health and drive both social benefits and cost savings.

  • Many companies are building and operating wind and solar power on a massive scale, helping economies to reduce their carbon emissions quickly and efficiently.
  • We continue to identify innovative solutions for power storage and distribution.
  • Solar companies design, manufacture and distribute photovoltaic systems and solar modules that convert sunlight into electricity, preventing CO2 emissions.
  • Fixed income issuers in our opportunity set include banks
    and supranational organisations that have issued green bonds
    for renewable energy generation projects, including solar and wind farms. This theme also includes investments in corporate issuers using the green bond market to finance the modernisation of the electricity grid or the shift from fossil fuels to renewable energy sources.

Resource efficiency

Human consumption of non-renewable resources like fossil fuels, metals, minerals, arable land, water, timber and clean air is increasing even as their supply is declining. Shifting to more responsible and more efficient methods of extracting, producing and distributing these resources is vital
for the environment and the global economy. This can help to cut waste and pollution, save money and improve people’s health.

  • We have identified several companies that use smart-metering technology to help customers save energy and reduce waste, lower costs and shrink their carbon footprints.
  • Water-pipe manufacturers are developing efficient drainage structures that mitigate water scarcity.
  • Fixed income issuers we have identified include those underwriting transport infrastructure projects. We also see opportunities among issuers creating energy-efficient office spaces, using innovative systems that reduce CO2 emissions and water usage. Their designs can improve workers’ productivity and tenants’ health over the long term.

Resource stewardship

The need for better stewardship of natural resources is becoming acute amid continued population growth
and rapid urbanisation. Moving
towards self-sustaining, regenerative production and consumption systems and upgrading infrastructure and technologies for safe, effective resource management may become an economic necessity. Decomposing landfills release harmful GHGs, and run-off pollution contaminates surface and groundwater, forming breeding grounds for diseases like cholera and malaria.

  • Sustainable waste-processing and recycling companies aim to achieve zero waste and minimise landfill use. Technologically advanced closed-loop systems turn waste into energy and destroy or recycle hazardous materials, such as from electronic products, pharmaceuticals and cars.
  • Other opportunities include metal-recycling companies and manufacturers of bioplastics and other sustainable materials. By preventing the harm caused by microplastics in soil, sediment and fresh water, these may have long- term positive effects on sea and land ecosystems.
  • Fixed income opportunities include municipal bonds issued by not- for-profit organisations to buy and conserve land, including forests. We have also identified debt issued by recycling companies to fund advanced solutions for waste, particularly from building projects.

A more sustainable future

Across the impact investing universe, disruptive companies and issuers are developing environmentally focused solutions to help society mitigate or adapt to the effects of climate change. We believe these will contribute to a more sustainable future for humankind and the planet while also potentially representing long-term growth opportunities.

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