We believe the solution to this conundrum is already taking shape. With governments and businesses responding to growing public pressure to reverse ecological damage and pollution, a distinct and attractive group of environmental equity investments has emerged. These are companies that combine strong environmental credentials with innovative products and services designed to safeguard the world’s natural resources.
Stars Aligned for Environmental Industry
Once a niche activity, environmental investing is now moving firmly into the mainstream. China’s spending on environmental issues, for example, has risen six-fold since the early 2000s, and Beijing has promised to invest even more heavily in advanced environmental science and technology. These types of initiatives boost the prospects of firms that develop environmental technologies such as filters for engines and industrial applications for pollution control.
As the corporate world is encouraged to embrace sustainable business practices, the number of publicly listed firms specializing in the development of environmental products and services has surged in recent years while the number of patents filed for environmental products over the past decade has more than tripled. This growth is likely to continue.
The commercial benefits – and investment potential – of environmental-related investments comes in many forms:
- Precision agriculture: A GPS guidance system can save about $13,000 in variable costs annually for a farm of 1,000 acres, paying for itself within one year. Even if only 10% of U.S. farmers use a guidance system for planting seeds, 16 million gallons of fuel, 4 million pounds of insecticide, and 2 million quarts of herbicide can be saved annually.1
- Renewable energy: Renewable energy usage has grown rapidly thanks to falling costs. At less than $0.02 per kilowatt hour, solar power will soon be cheaper than any form of fossil fuel-based power generation.2 The cost of electricity from offshore wind farms, once one of the most expensive forms of green energy, is expected to drop by 71% over the next two decades.3
- Smart cities: Installing a suite of connected infrastructure such as water, electricity and waste, or upgrading aging systems should cut bills and improve resource management. Barcelona, for example, saves $58 million annually with smart water technology which uses connected sensors and cloud servers to monitor irrigation and water levels.4
- Energy efficiency: Investing in electric public transport, using more renewable energy and increasing efficiency in commercial buildings and municipal waste management could cut energy costs by about $17 trillion worldwide by 2050.5
- Pollution control: Pollution mitigation and prevention can yield large net gains for the economy. In the U.S., an estimated $30 in benefits has been returned to the economy for every dollar invested in air pollution control since 1970.6
Identifying Environmental Leaders with Long-Term Return Potential
Companies focused on environmental innovations form the core of our Global Environmental Solutions (GES) portfolio, a strategy that combines a scientific, rule-based framework with rigorous fundamental research to identify environmental investments that offer the potential to deliver superior long-term returns.
The strategy focuses on companies that specialize in developing products or services that mitigate environmental damages and whose activities are sustainable. We seek out companies that derive at least 20% of enterprise value from environmental products and services, and that have attractive risk-reward characteristics. As active owners, we exercise proxy voting rights and engage with companies on governance issues. We believe this is a responsible form of capitalism that mitigates risks and can lead to sustainable long-term capital returns.
Pairing Responsible Stewardship with Investment Returns
Over the next three decades, Earth will be home to some 9 billion humans, with a record number of people emerging from poverty to become the new middle class. But this progress is likely to place an even bigger strain on the environment than already exists – potentially even taking it to the breaking point.
Fortunately, in our view, the solution to this challenge is already taking shape as governments and businesses respond to growing public pressure to reverse environmental damage and pollution. In this solution is an opportunity for investors who want to be responsible stewards of the environment while simultaneously securing an attractive return on their investments.
Read our white paper, Investing for Growth Through Environmental Innovation, for more on the environmental challenges facing the world today, growth in the environmental technology industry, and how we identify opportunities for our Global Environmental Solutions strategy.
- ^Source: USDA, https://link.springer.com/article/10.1186/2192-0567-2-22.
- ^Source: Bloomberg.
- ^Source: Bloomberg New Energy Finance.
- ^Source: http://internetofeverything.cisco.com/sites/default/files/pdfs/Barcelona_Jurisdiction_Profile_final.pdf
- ^Source: The Global Commission of the Economy and Climate.
- ^Source: Lancet Commission on pollution and health, 10/19/17.