Climate change is reshaping the world’s stockmarkets and delivering lucrative returns for investors who jumped on the green train early.
Hundreds of billions of dollars are set to be spent each year on the push towards zero-carbon, and investment specialists say people who invest into this mega-trends emerging “champions” will do well.
However, investors will need to look beyond Australia because the world’s largest and most successful players are based offshore. Think Elon Musk’s Tesla, with its shares multiplying 20 times in value in just five years, or global renewable energy companies such as Denmark’s Vestas.
Munro Partners chief investment officer Nick Griffin said up to $50 trillion would be spent over the next 30 years converting countries to zero-carbon emissions as the world transitioned to renewable energy, electric vehicles and increased recycling.
“It’s $50 trillion of revenue potential for companies that can solve the problems,” Mr Griffin said.
“It will go to lots of companies doing lots of different things across insulation, lighting, the electric vehicle chain and the renewable energy chain.”
There have been local successes and the Deloitte Clean Tech Index, which monitors about 80 companies across sectors such as renewable energy, recycling, green buildings and carbon trading, has outperformed the wider market for seven of the past 10 years.
The index surged 53.4 per cent over the year to June against a 24 per cent rise in the wider market.
Deloitte partner John O’Brien said the need to combat global warming would ultimately change the operations of every business.
“Every company is going to have to change how it operates, every investment portfolio will need to change, it will be a massive change and it will accelerate,” Mr O’Brien said.
“It’s not just the big companies – it will flow down through every supply chain.”
Investment newsletter Marcus Today’s executive director, Chris Conway, said environmental factors had “come to the forefront of what investors are looking for”.
“It’s a multi-decade theme – if you can pick the right companies, you will do well,” he said.
The green trend was already punishing traditional energy companies, whose share prices were weaker than expected despite surging prices for commodities such as coal and gas.
“We know we can’t keep burning fossil fuels forever and people don’t want to invest in that space anymore,” Mr Conway said.
He said many investors bought into renewable stocks through exchange traded funds, such as the BetaShares ERTH ETF. “It is a portfolio of up to 100 companies that derive at least 50 per cent of their revenues from products and services that help to address climate change and other environmental problems.”
Munro’s Mr Griffin said the green trend had already created industry champions including Tesla and Danish wind turbine company Vestas “and there will be more champions to come”.
Investors would have to look beyond Australia’s borders for big winners, he said.
“It’s highly unlikely that investing in the Australian market alone will help you find these companies – it makes sense to have a global approach.
“Ninety-seven per cent of the world’s equities are listed outside Australia.”
The article was originally published by The Australian here.
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