There are three markets that could become leaders for sustainable investment opportunities in the coming years, according to Premier Miton’s Duncan Goodwin.
Environmentally and socially responsible investing and funds that emphasises an ESG (environmental, social governance) element have been steadily building in popularity the past few years with the pandemic accelerating this trend significantly.
This has been in tangent with numerous governments doubling down on their environmental commitments, including pledges to prioritise support for companies providing solutions to these issues.
Europe has been a leading example of this, with the bloc continuously pushing through legislation to support a transition away from a fossil fuel economy into a renewable one.
But other markets could emerge as leaders in the coming years for these types of sustainable investment options, according to Goodwin, who is focusing his Premier Miton Global Sustainable Growth fund on three areas.
This shift will mainly be down to governments increasing support for companies providing climate and social solutions in a push to achieve sustainability targets, and businesses getting better at disclosing sustainability practices.
One of the regions Goodwin thinks will emerge as a major source of sustainable investment stock options is China.
Last year China laid out its plans to achieve carbon neutrality by 2060, the first long-term plan from the country regarding climate change.
This has major implications for the country’s next Five-Year plan for 2021-25 – the 14th instalment. This economic and policy blueprint included carbon emission, unemployment and energy consumption targets as well as plans to promote green development to support economic growth.
This ambitious climate declaration is one of the main reasons Goodwin thinks China will become a bigger sustainable investment opportunity as it will lead to support for those businesses.
He said: “I think clearly China is looking to take the lead with net zero obligation clearly. [We] can see a huge amount of direction of capital with solar and electric vehicles. And to that technology and growth perspective, and lowering the deflationary perspective, lowering the cost of these is clearly a very, very exciting place to be investing.
“And I would say that certainly is an area where from a gross delivery perspective looks really interesting to us.”
India was another region Goodwin highlighted, for similar reasons.
He said: “Similarly, you see countries such as India starting to really increase their political drive in alternative energy and energy transition, just as we saw with the telecoms industry. […] I think you’re going to see in countries like India where they look to decarbonise their economy and can do that fairly effectively.”
Like China, the Indian government has laid out ambitious climate policies, with a major focus on converting the majority of the country’s energy supply to renewable sources such as wind and solar. India’s current aim is to have 450GW of renewable energy being produced by 2030.
“So we’re very excited about India and China from a technology and a development perspective in terms of energy, infrastructure and sectors that we look at,” Goodwin said.
Another area Goodwin thinks will emerge as a strong market for sustainable stocks is the US.
While the US doesn’t lack government support or infrastructure for sustainable industries, the companies within them are not regarded as sustainable investment options in the same way as some European counterparts, despite providing similar or equal products and operating with better valuations, according to Goodwin.
“There are certainly companies that we look at in North America that we consider to be delivering the same degree of sustainability as European counterparts but they're not recognised as such and therefore there's a valuation opportunity for the company,” Goodwin said.
This is partly because the US companies have generally been poorer at providing sustainability reports or declaring their alignment with global sustainable development goals.
Goodwin said that as this improves more investors will recognise the sustainable investment opportunities in the US.
“I think you are seeing genuinely improvement globally, but North America in terms of rates of change, I think you're starting to see North American companies pick up on this and so disclosure is getting much, much better,” Goodwin said.
He added: “And that also works for other companies globally that are may be smaller. That’s why for us it's important to have combination of assessing the products and services and assessing the company's own ESG credentials.
“Because a 60-page sustainability report will not necessarily mean that company is more sustainable than a smaller company that doesn't have the infrastructure to provide that sort of report. Clearly, that is another area where we see opportunity. Where there are companies that are doing very good things that are not even necessarily providing that detail to the market at that particular point in time.
“And as that disclosure improves and we should see these companies start to see better capital being allocated to them.”
On the future of the sustainable investment space, Goodwin added: “So it really is different regions offer different opportunities, whether it's a valuation opportunity to realign existing companies that are elsewhere, or major step forwards in things like alternative energy or more nascent new technology and things like recycling. It really is different across different regions.”
Goodwin has run the Premier Miton Global Sustainable Growth fund since the start of 2020 when it changed from being the Premier Global Alpha Growth fund. This name change reflected a “wholesale change” in the fund’s investment approach, which still focused on growth stocks but now has a sustainable focus.
Over the past three years the fund has underperformed the IA Global sector, with a total return of 35.98 per cent.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Since Goodwin took over the portfolio the fund has made a total return of 26.13 per cent, outperforming both the IA Global sector and FTSE All World index.
Source: FE Analytics
It has an ongoing charges figure (OCF) of 1.06 per cent.