The market is growing but is not an overnight sensation. Investors need to adjust their thinking on what is still a new market and there is assistance afoot to find the right managers and geographical and industrial sectors to focus on.
Charlie Thomas, fund manager of Jupiter’s Climate Change Solutions SICAV agrees sustainable energy is a growth market.
"We have seen a dramatic increase in the number of floats around the world in this space. Five years ago there were about six or seven solar companies, now there are about 85 global solar companies. Geographically we are getting more spread – more so than perhaps five years ago when it was more Euro-centric. It is broadening out to the US, India, China and some of the emerging markets. We will look at the Taiwanese, Chinese, Korean stocks in this space."
Research firm Clean Edge reports in Clean-Energy Trends 2008 that clean energy investment was significant in 2007 and will continue in 2008. Solar, wind, biofuels, geothermal, energy intelligence, hybrid- and all-electric vehicles, advanced batteries, green buildings, and other clean-energy-related technologies and markets it says provid bright spots in an otherwise sluggish economy.
Clean Edge reports that there was a 40% increase in revenue growth for solar, photovoltaics, wind, biofuels, and fuel cells in 2007, from $55 billion in 2006 to $77.3 billion in 2007, and predicts $254.5 billion within a decade.
Chris Taylor, fund manager of Neptune Green Planet points out even that is 'peanuts' as a percentage of the total of the power consumption market. The question investors have to ask he says is what is the investment time horizon.
"The reality of it is you can say within five years it is going to be big but in three years you can probably say the same. Right now is more of a mixed situation. It takes about 25-30 years to become a fully-fledged global markets sector. It grows like the clappers in the first 10 or 15 years because by definition what you are talking about is a bunch of emerging industries the equivalent of emerging markets, it takes a while to settle down and take its stride."
Thomas says it is important to understand that cleaner or sustainable energy is a broad spectrum.
"You are looking from the high tech, futuristic technologies in the early stages and listed R&D vehicles to the renewables such as wind, solar, geo-thermal. Then to the other end of the market, which is perhaps less recognised, such as insulation, looking at the demand side and not just the producing side."
"If you look at the solutions to climate change only about 20% is from new energy forms – 80% is coming from being more energy efficient and on the demand side and also new electronic products and vehicles that use much less energy to run. That’s where we see most value in the market at the moment,” says Thomas.
Mercer and the International Finance Corporation (IFC) are to establish ratings of fund managers in emerging markets based on their capacity to incorporate environmental, social and governance factors (ESG) into their investment decisions. Mercer’s research study (to report later in the year) will involve interviewing 50 managers based in the emerging markets of China, India, South Korea and Brazil. The research will also include a survey of over 200 managers globally, who invest in emerging markets. The aim is to provide a greater depth of understanding of how sustainable growth in these four countries will be.
Helga Birgden, Mercer's responsible investment leader, Asia Pacific, says: "We believe there are probably many managers and companies already engaging in sustainable practices, but not promoting themselves as such. A key aim of the study is to ensure these practices and managers are duly recognized.”
Taylor adds investors are likely to want to own two or three stocks in each sector because there is usually not one perfect solution.
"There is genuinely more than one good solution to each problem and because it is a global problem, what works in one place may not work in another. So you have that potential issue as well as the fact that everyone everywhere needs these solutions."
2 May 2008