Using your wealth to tackle climate change

The 2021 United Nations Climate Change Conference - COP26 – is currently taking place in Glasgow. The renewed focus on tackling climate change is expected to spur people on to call into question how they live, shop, and even invest.

Many will already know that it is possible to invest savings in companies trying to make the world a better place. The amount of money pouring into responsible investments, which back these firms, is rising: global ESG (environmental, social and governance) assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total assets under management, spurred by the perfect storm created by the pandemic and the green recovery in the US, EU and China*.

In response to growing interest, responsible fund launches are coming thick and fast.
Some funds are broad in their focus, incorporating environmental protection as one of a number of themes within the fund. Others are narrower, concentrating efforts on just the E part of ESG.

Energy efficiency: Ninety One Global Environment

Ninety One Global Environment, for example, only invests in companies that are contributing to the decarbonisation of the world economy. The managers not only analyse the levels of carbon dioxide that will be avoided by using one firm over another, but they go right through a company’s products and services, supply chain and areas of activity looking at the breadth of CO2 reduction. As well as avoiding creating carbon emissions, companies will also have to have at least half of their revenues from three sectors: renewable energy; efficient use of resources, and electrification. 

Deirdre Cooper, manager of the fund, told us about one of her holdings that she is excited about. She said: “The heating and cooling of buildings accounts for 15% of global emissions and is set to rise to almost 25% by 2030, due to urbanisation and population growth. As such, Government policies offer a supportive backdrop for companies such as Trane to replace inefficient HVAC (heating, ventilation, and air conditioning) systems, with more energy-efficient solutions.  

“Trane is seen as the leader in the sector for energy efficiency with the most aggressive decarbonisation target amongst peers, to reduce their customers’ carbon footprints by 1 gigaton of CO2e by 2030. Trane also has a leading consultancy, which helps customers optimise energy efficiency; in its heating business line, the company is well placed for the transition from oil and gas boilers to heat pumps, electric heating and district heating.”

Plastic recycling: LF Montanaro Better World

As the damage done to the environment by one-use plastic becomes more and more evident, the demand for plastic recycling and sustainable packaging solutions is rising. The pandemic accelerated the online shopping habit meaning a huge increase in online delivery packaging was generated during lockdown. Investors who feel strongly about cutting out and recycling plastic can use their money to support those companies making the biggest inroads in reducing and recycling.

LF Montanaro Better World invests in firms doing just that. The fund’s manager, Mark Rogers, talked to us about US firm Trex, the world’s largest manufacturer of high-performance composite decking. “Their composite decking is made from recycled wood and plastic bags and is a substitute for wood decking,” he said. “There are numerous environmental advantages. First, less waste when manufacturing, as you get no off cuts of wood.  Second, you use less energy. Third, you are re-directing plastic bags and recycled wood away from landfill sites. Fourth, you do not have to keep applying chemical treatment to the wood. A 500 square foot Trex deck contains 140,000 recycled plastic bags. 

“The investment case is driven by the exciting growth opportunity as composite decking takes share from wood. The amount of decking in North America that is done with wood is 83%, so there is lots of potential left in the story. Trex is the market leader in composite decking with a 45% market share and is the most recognisable brand.”

Marine protection: Rathbone Ethical Bond

Bond funds are also part of the ESG investing trend. Rathbone Ethical Bond fund excludes mining, arms, gambling, pornography, animal testing, nuclear power, alcohol and tobacco. And all positions must also have at least one positive environmental, social, or corporate governance quality.

Stuart Chilvers, assistant fund manager, highlighted the bond Orsted 2.5% Hybrid. He said: “Orsted is the global leader in offshore wind power and was ranked the world’s most sustainable energy company in the Corporate Knights Global 100 index three years in a row. They have a $30billion green energy investment pipeline towards 2025 and are aiming to reach more than 30GW of installed capacity across renewable technologies by 2030- enough to power more than 55 million people.

“Our preference is for the hybrid bond for the extra yield this provides versus the senior debt and are happy being more junior in the capital structure given we are comfortable with the fundamentals of the business.” Stuart also mentioned another bond - The Nature Conservancy 1.154% 2027. He said: “This is from one of the largest not-for-profit conservation organisations in the world and the largest conservation programme in the US. An example of the work they do is the debt conversion deal for the Seychelles that they co-designed, which saw a commitment to increase marine protection from just 0.04% of its Exclusive Economic Zone to 30%- an area of nearly 160,000 square miles.”

Ready to invest?

Businesses and funds that seek to protect and improve the world are wide-reaching. All the funds on the Chelsea Selection that fit this remit have a green leaf symbol next to their names.

*Source: Bloomberg Intelligence, 23 February 2021

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the managers and do not constitute financial advice. Reference to individual securities is for illustration only and not a recommendation to buy or to sell.

Published on 08/11/2021