The fast view
- Trends in climate finance remain a strong growth driver for companies that are helping the world decarbonise. However, climate spending remains well below the level required to achieve the world’s net-zero ambitions.
- Ceteris paribus, it will be easier to meet those net-zero goals in a more benign interest rate environment. The recent rapid increase in long-term US interest rates has had a significant negative impact on sector sentiment, which is now at all-time lows. However, even at current cost of capital levels, the ‘clean’ is still significantly cheaper than the ‘dirty’ in almost every market, with quite a bit of remaining headroom.
- It is also important to note that not every part of the world is worried about rising inflation and interest rates. China is to a large extent in the opposite situation. While the complex geopolitical backdrop requires a careful investment approach to allocating to China, for investors in climate solutions, China remains too large, innovative and important to ignore.
- Demand for wind and solar power continues to rise, underpinning the long-term growth potential of companies supporting the shift to renewable energy. For example, 2022 saw a 50% increase in solar demand, following c.30% growth in 2021.
- Globally, more than 7 million electric vehicles (EVs) and hybrids were sold in the first seven months of 2023, accounting for 23% of all new vehicle sales. China is the main driver of the >50% growth in global EV sales year-on-year; from a lower level, EV sales are also trending positively in the US.
- Structural demand drivers for resource-efficiency solutions include tighter building regulations and rising global temperatures – cooling is expected to become the fastest growing use of energy in buildings.
General risks. All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.
Specific risks. Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. Derivatives: The use of derivatives is not intended to increase the overall level of risk. However, the use of derivatives may still lead to large changes in value and includes the potential for large financial loss. A counterparty to a derivative transaction may fail to meet its obligations which may also lead to a financial loss. Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. insolvency), the owners of their equity rank last in terms of any financial payment from that company. Concentrated portfolio: The portfolio invests in a relatively small number of individual holdings. This may mean wider fluctuations in value than more broadly invested portfolios. Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems. Sustainable Strategies: Sustainable, impact or other sustainability-focused portfolios consider specific factors related to their strategies in assessing and selecting investments. As a result, they will exclude certain industries and companies that do not meet their criteria. This may result in their portfolios being substantially different from broader benchmarks or investment universes, which could in turn result in relative Investment performance deviating significantly from the performance of the broader market.
