07 Oct 2020
Charlie Thomas, Head of Strategy, Environment & Sustainability
Clean energy and other sustainable solutions will be key to a reinvigorated post-COVID economy. This time, unlike after the Global Financial Crisis, politicians show little sign of backtracking on sustainability, believes Charlie Thomas.
Thankfully, history does not always repeat itself. In the aftermath of the Global Financial Crisis of 2008/9, governments largely backtracked on their sustainability goals. Perhaps they felt sustainability was a luxury unaffordable during a recession. The COVID-caused recession of 2020 may turn out not to be as long-lasting as that caused by the Global Financial Crisis, but it is much deeper. Despite today’s profound economic uncertainty, this time politicians show little sign of backtracking on sustainability. The proposal on 16 September from the European Commission to reduce greenhouse gas emission by at least 55% by 2030 from 1990 levels, a hike on the 40% cut currently targeted, is the latest in a string of signals that climate and wider sustainability issues remain at the forefront of political agendas. There is growing acknowledgment from governments, commercial organisations, and civil society of the need for change.
Climate change and COVID are both systemic risks that must be faced collectively. The pandemic has brought into focus the acute nature of such risks and presented an opportunity to redirect financial and political capital towards solving them, and as a means of reinvigorating economic growth.
An example of this is the EU’s COVID recovery package. The EU is planning massive investments to fight the economic effects of COVID and embedded within them is action on climate change. The EU’s package includes investment in renewable energy, clean hydrogen, batteries, and sustainable energy infrastructure. Meanwhile, although the result of the presidential election in the United States on 3 November is currently unforeseeable, Democratic candidate Joe Biden has called for a US$2 trillion investment in clean energy to address the climate crisis.
At Jupiter, we have a long history of commitment to sustainable investing. Our sustainable solutions strategy was launched in 1988 in the wake of 1987’s Brundtland report. Named in recognition of the work of former Norwegian prime minister Gro Harlem Brundtland, the report was an important milestone in helping to define ‘sustainable development’ and placed it on the political agenda.
Within our seven sustainable solutions themes, over the medium term we have increasingly allocated to clean energy. Recently this has been an important driver of strategy returns. The cost of renewables has continued to fall, and so have the insurance and financing costs. For a renewable energy project, such as a wind farm, financing costs have never been so low. Yet there remains massive potential: about 80% of the world’s energy consumption is still derived from fossil fuels.
With an unprecedented energy transition underway, we are prepared to invest in energy companies that are committed to transforming their business rapidly towards clean sources. Our experience is that much of the investment value is to be found during the transition, rather than only after it has been completed.
Not all ESG strategies are the same. Some exclude certain companies on ethical grounds and invest in anything else; others invest in any company but integrate ESG factors into their analysis. We invest across seven sustainable solution themes in companies trying to solve the problem: from clean energy to the circular economy. The investment universe is driven by applying positive inclusion criteria focussing on seven sustainable solution themes: circular economy; clean energy; water; mobility; energy efficiency; sustainable agriculture, nutrition and health; and environmental services. These are the companies specifically likely to benefit most from political commitment to green issues.
We believe that companies focused on providing solutions in areas such as climate change mitigation, pollution prevention, the circular economy, and the sustainable use and protection of water and natural ecosystems, present multi-decade investment opportunities. The Jupiter Ecology strategy offers clients focused and specialist exposure to these companies, seeking both positive investment returns and sustainability impacts.
We are rarely invested in mega-caps, and our knowledge of management is key. We typically meet – face-to-face, or currently, virtually – around 250 companies a year.
Our process starts from our proprietary database which includes information on more than 1,200 companies. We apply a focus lens to around 300 companies, analysing regulation, demand trends, technology, fundamentals, and technical analysis. We subject a subset to even more detailed investment analysis and company engagement, resulting in a portfolio of between 50 and 70 stocks.
Our analysis is thorough because we are long-term investors. Our holding periods are on average between six and seven years – longer than most managers’. We have held some stocks for more than twenty years. In sustainability investing, as in much else in life, commitment is key.
Important information
This article is intended for investment professionals only. It is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the Fund Manager at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. The funds are sub funds of the Jupiter Global Fund SICAV, a UCITS. fund incorporated as a Société Anonyme in Luxembourg and organised as a Société d’investissement à Capital Variable (SICAV). It is not an invitation to subscribe for shares. Subscriptions can only be made on the basis of the current prospectus and the Key Investor Information Document (KIID), accompanied by the most recent audited annual report and semi-annual report. These documents are available for download from www.jupiteram.com or hard copies may be obtained free of charge from the Company’s representative Jupiter Asset Management International S.A., Nordic Branch, 4th Floor, Strandvagen 7A, 114 56 Stockholm. Issued by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg, which is authorised and regulated by the Commission de Surveillance du Secteur Financier. 26223