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BLUE CHIP INVESTMENT | Responsible investment Can you earn an attractive return while making a real-world impact? The world needs US-trillion of annual investment in the energy sector alone to combat climate change. But this is only part of the net-zero story. Here’s how SA investors can tap into the structural growth opportunity of a lifetime. Several factors provide the potential for South Africa to be a future leader in the manufacturing and production of climate solutions. According to the South African Department of Energy, most areas in the country average 2 500 hours of sunshine per year, with an average daily solar radiation level across a year of more than double that of Europe. We also have an abundance of naturally occurring raw materials that can be used in the manufacture of electric vehicles, and there is government support to reach net zero by 2050, with a heavy emphasis on greening the power sector. Many South African investment portfolios are exposed to some of these trends by virtue of holdings in domestic mining companies as well as traditional energy companies that will be transitioning their businesses over time. However, exposure to the globally leading climate solution companies of today is much more limited. These companies offer the prospect of attractive returns with a real-world impact, which if accessed through a high-conviction approach, provide a compelling addition to both domestic and international portfolios. The structural growth opportunity of a lifetime The climate emergency has resulted in a fast-evolving regulatory and policy backdrop as well as a significant momentum shift in corporate and public attitudes towards climate change. For investors, “decarbonisation” matters because transitioning to a low-carbon economy requires a radical overhaul of everything we do, and as the International Energy Agency has highlighted, the transition from a carbonheavy to a clean-energy global economy has barely begun. This affords companies that are enabling that transition an extraordinary growth opportunity. Achieving carbon neutrality by 2050 requires the following milestones to be achieved by 2030, a mere seven years away: • Four times increase in wind and solar capacity • An 18x increase in electric vehicle (EV) sales • A 41x increase in annual EV battery production • US-trillion of annual investment in the energy sector alone efforts to cut carbon emissions are driving vast flows of capital, fuelling innovation and creating an enduring tailwind for select companies. If appropriately executed, an investment strategy based on this opportunity generates compelling returns over the long term and contributes to a positive real-world impact. Importantly, this is not prioritising real-world impact at the expense of returns. The climate-solutions investment opportunity extends far beyond the wind and solar farms that spring to mind. It also spans companies that are helping to decarbonise buildings and homes, the food we eat, the products we consume and the transport we use. Moreover, it encompasses not just the direct beneficiaries of the energy transition, but the entire related supply chain that needs to be built around them. It is also global, and we believe emerging markets offer significant additional potential for investors in decarbonisation. Finally, contrary to potential misconception, this is not a small or mid-cap play. The types of companies we seek for the Ninety One Global Environment Fund, for example – attractive growth with persistent profitability and robust competitive advantages – lead to a large-cap orientation. In fact, approximately 85% of the portfolio was large cap (a market cap >-billion) at the end of 2022 It is not often that an investment opportunity comes along with strong long-term drivers, providing the potential for attractive returns while contributing to a positive real-world impact. Investors should consider exploring investment strategies that invest in companies driving decarbonisation – or risk missing out on an unprecedented opportunity. That is only part of the getting-to-net-zero story. We also require radical changes to agriculture, food production, industrial processes, buildings and more. All this is changing the risk and return potential of industries and individual companies. Global Deirdre Cooper, Head of Sustainable Equity, Multi-Asset, Ninety One Graeme Baker, Portfolio Manager, Multi-Asset, Ninety One 38 www.bluechipdigital.co.za
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