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The green themes investment trust managers are backing

11 July 2018

Several trust managers outline the ‘environmentally friendly’ opportunities they are finding as well as the current challenges they are facing.

By Maitane Sardon ,

Reporter, FE Trustnet

Investing in recycling infrastructure, non-plastic based packaging, clean electricity generation or renewable energies are some of the ways investment companies are helping to tackle environmental issues.

As the desire for limiting the human impact on the environment continues to grow, investment companies are increasingly providing investors with the opportunity to invest in green businesses or in businesses that help tackle the environmental challenges in the 21st century.

Not only that but the industry is also aware of the key role policies play and the issues that need addressing.

The electric vehicle (EV) market is one such area that the team behind Impax Environmental Markets investment trust is currently backing.

New electric vehicles in the EU28

 
Source: European Environment Agency

“If you consider your own circle of acquaintances there was little likelihood of anyone you knew owning or considering owning an electric vehicle a decade ago,” said Jon Forster, co-manager of the £488.8m fund.

“However, that isn’t the case today and we think that trend will, if you excuse the pun, accelerate in the next ten years and beyond.

“If you are investing in electric vehicles it is tempting to look at car brands like Tesla,” he added. 

Given how difficult it is to know who the brand winners and losers will be, Forster said the team invests in critical components like materials used within EV batteries and power electronics for the drivetrain of vehicles and charging infrastructure.

The need for these materials, Forster noted, will increase as the EV market grows. 

Reducing plastic packaging is another area where the team is finding opportunities, including recycling infrastructure, fibre-based packaging and new materials such as bioplastics made from biodegradable materials.

As Forster highlighted, not only has public awareness over the significant amount of plastic packaging used by households increased but governments are also reacting: “The EU has a target to recycle 90 per cent of plastic bottles by 2025 and the UK government is in advanced discussions to introduce a deposit scheme for drink containers.”


Clean electricity generation is another investment opportunity for managers, particularly given the range of schemes on the market.

“This is a growth sector not only as we strive to combat climate change but also as falling costs make renewables one of the cheapest forms of generation,” noted Richard Crawford, manager of the £1.1bn Renewables Infrastructure Group investment trust.

“To add to this, its non-reliance on imported fuels makes it one of the most secure forms of generation. As well as decarbonising industrial and consumer energy currently met by electricity, this looks likely to extend into the transport sector with electric vehicles,” he added.

GCP Infrastructure lead adviser Philip Kent noted that the Climate Change Act, which set obligations on the UK government to reduce carbon emission to 80 per cent of a 1990 baseline by 2015, has prompted the implementation of support mechanisms that have led to significant growth in the renewable electricity generation.

Total UK greenhouse emissions 1990-2016

  

Source: Office for National Statistics

“Renewables accounted for 30 per cent of the UK’s total electricity generation in Q1 2018 and GCP Infrastructure has invested over £620m across wind, solar, biomass and hydro technologies,” he said.

Current areas of government support, Kent highlighted, include renewable heat and clean transport, although there remains more to do in these areas.

“The UK Climate Change Committee recently reported net increases in emissions from transport and only minor reductions in farming emissions in the period from 2012 to 2017,” he said.

But the competitive tension between energy cost, security of supply and the green agenda will continue to challenge support mechanisms targeting all forms of renewable energy, Kent warned.

As both developed and emerging economies are transitioning their energy systems away from traditional fossil fuel-based energy systems, Ricardo Pineiro, manager of Foresight Solar Fund, said the team is investing in ground-based solar generation assets.


“Foresight Solar Fund takes a disciplined approach to investments, acquiring only those assets that meet return requirements on a risk adjusted basis” the manager said.

He added: “We target assets which strengthen the fund’s diversification which can be by geographical location, panel manufacturer and engineering procurement contractor/operations & Maintenance counterparty, and last year acquired our first overseas assets – four sites of net 146MW [megawatts] under construction in Australia.”

Noting ethical, social & governance (ESG) considerations are incorporated into the team’s investment processes, Pineiro said the disciplined approach of investment has seen the closed-ended fund meet all dividend targets since IPO in 2013.

When it comes to the headwinds to tackle environmental issues, fund managers agree on the importance of government policies.

At the start of the year, the UK government announced its 25-year environment plan to help improve the environment for the next generation.

  

Source: Eurostat

“Historically, there have been three trends which we condense environmental investing down to; firstly, policy; secondly, progress and the development of technology; and thirdly, people (in terms of population growth),” noted Charlie Thomas, manager of Jupiter Green investment trust.

“A lot of environmental issues were highly dependent on policy and this has historically been very important, however this can fluctuate.”

He added: “The cost of solar technology has gone down by 80 per cent over the last 10 years and will continue to fall as the technology developments in this area continue.

“Government subsidies for renewable energy are becoming fewer though, as we’re seeing a gradual shift from early stage technology dependent on subsidies being superseded by the pace of technological advances.”

In Europe, Thomas said, there is political legislation encouraging more money to go into sustainable funds, which he believes could be significant for the industry as a whole.

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