Looking beyond renewables
In the investment world, perceptions can be hard to shake. One that has followed green investment in the ten years I’ve been involved in the industry is that environmental investing is largely synonymous with investment in renewable energy.
It’s not hard to see how such a perception came about with several renewable sectors among the best performing market sectors in the five or so years prior to the credit crisis. However, the flipside to this is, of course, that when the renewable energy sectors are in turmoil (as we are currently seeing with solar and wind), this narrow view of environmental investment can lead some to write off the investment category all together.
I believe this is a misguided view.
While alternative energy is certainly a key sector in the so called “green” investment universe (and there are funds that specialise in this area), it is far from the end of the investment story. Over the past decade or more, the universe of environmental solutions companies has developed significantly and now provides excellent long-term growth opportunities and diversification potential.
This depth means that many environmental solutions businesses are not sensitive to the subsidies and support mechanisms which have supported growth in the renewable energy sector and are now being clawed back as western governments struggle to rebalance their books.
Instead a growing number of businesses are being driven by important structural shifts in the global economy. As such they offer investors opportunities to participate in the sorts of secular growth that is being caused by a burgeoning global population, increasing focus on natural resource usage (such as water and soils) and the continued increase in global energy and commodity demand – particularly from emerging market economies.
Companies involved in energy efficiency, sustainable food production, metals recycling, water saving and reuse are examples of the sorts of businesses that are benefiting from these economic shifts – and are generally to be found in the more diversified environmental funds, such as the Jupiter Ecology fund.
Moreover, it is our view that environmental investing will continue to move away from the sidelines over the next few years. This is because issues that underpin the sector’s growth – such as global demographic changes, the need to develop infrastructure and the efficient use of natural resources – are increasingly and critically becoming more central to geopolitical and economic decision making.
The renewable energy sector may be facing near-term headwinds, but to use that as a point of reference for environmental investing is to miss a potentially significant opportunity, in my view, to invest in the long-term structural growth of the global economy.
Charlie Thomas is fund manager of the Jupiter Ecology Fund.
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