From the smog settling over London, to the poisonous monoxide levels in Shanghai, awareness of climate change is becoming more acute amongst the general public. Thomas Sørensen and Henning Padberg, co-managers of Nordea Asset Management's global climate and environment equity fund (GCLIMEF), assert that regardless of Trump's decision to reject the Paris accord, the incentives to invest in environmentally sustainable companies are still imminent. "Companies across the globe are setting ambitious targets to save energy, materials and resources. There is an overwhelming understanding that increasing sustainability is vital in order to remain competitive," says Mr Sørensen.
In terms of asset management, ‘climate and environment’ is a long-term megatrend, one which has given way to an investment universe consisting of approximately 1000 companies with a market cap of more than 5 trillion euros.
Even so, Padberg believes that the impact of climate and environment growth drivers on company cash flow is highly under-estimated by the market.
“Climate investments continue to be dogged by the assumption that they are slow to generate returns and are dependent on subsidies,” Padberg said, “but this is simply not true.”
Climate solution opportunities fall into two primary investment clusters:
- Resource efficiency: smart grids, eco-mobility, intelligent construction and advanced materials (majority)
- Environment protection: waste management and clean water and air comprise a smaller portion of the solutions.
A third cluster - alternative energy solutions – is by far the smallest. This counters the common misconception that solar panels and windmills dominate the climate and environment universe.
“Climate impacts all value chains and industries,” Padberg continued, “but we search for holdings in established markets that offer niche products.”
The stocks are put through a rigorous selection process before they are placed in Padberg’s portfolio. Companies with an MSCI EVA environmental, social, corporate governance (ESG) rating lower than B are not considered. Business fundamentals, financial performance and corporate culture are also determining selection factors.
Due to this, the portfolio is 40% less carbon intensive than the overall equity market and the fund out-performed its Bloomberg peer group and the MSCI Global Environment in 2016.