Sustainability with substance: The decarbonisation structural growth opportunity

Sentiment towards renewable-energy companies is at an all-time low. However, Deirdre Cooper, Head of Sustainable Equity, and Graeme Baker, Portfolio Manager, argue that decarbonisation remains the biggest structural-growth opportunity of their generation

20 Oct 2023

20 October, 2023. Regardless of recent negative market sentiment, trends in climate finance remain a strong growth driver for companies that are helping the world decarbonise. According to the International Energy Agency (IEA), climate financing globally increased by over 50% between 2015-2022, from c.US$1 trillion to c.US$1.6 trillion (in today’s money)1. Despite this, climate spending remains well below the level required to keep even within a 2-degree global-warming scenario. In the whitepaper Get structural: re-examining the decarbonisation growth trends, Deirdre Cooper, Head of Sustainable Equities, and Graeme Baker, Co Portfolio Manager of Global Environment, examine the primary areas of the decarbonisation investment opportunity set: renewable energy, electrification and resource efficiency. They assess established technologies and emerging areas like green hydrogen and re-examine China’s role in decarbonisation.

Evidence of structural growth: Renewables, electrification and resource efficiency

Deirdre Cooper, Head of Sustainable Equity, Ninety One: “Demand for wind and solar power continues to rise. For example, 2022 saw a 50% increase in solar demand. Moreover, 2023 is set to be a record year, with expectations of c.55% growth in solar demand or more. This underpins the growth potential of companies linked to solar energy, such as Xinyi Solar and Sungrow Power Supply, which are the world’s largest manufacturers of solar glass and solar inverters, respectively.” In the first half of 2023, Xinyi Solar’s solar-glass volume sales increased by 49.6% year-on-year. Over the same period, Sungrow shipped 50GW of solar inverters globally, a 63% increase year-on-year.

The wind energy sector has faced significant challenges in recent months, partly due to cost inflation and higher interest rates. However, the longer-term backdrop for companies engaged in the onshore and offshore wind sector remains compelling. The forecasted wind-energy build-out for this year is 108GW, up c.25% from last year. The latest forecasts indicate an estimated cumulative wind installation of 1,930GW by 2030.

Clean-transport trends are also positive for investors in decarbonisation. Graeme Baker, Co Portfolio Manager, Global Environment, Ninety One: “Globally, more than 7 million 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. China’s BYD took the number one spot, with more than 1.5 million unit sales. Tesla was number two globally for EV sales, with c.1 million unit sales.”

Resource efficiency is the broadest of the three segments of the decarbonisation opportunity set and includes technologies for heating and cooling buildings, decarbonising agriculture, making consumer products less carbon intensive, and driving efficiency gains in manufacturing. Cooper continued: “As global temperatures rise, cooling is expected to become the fastest-growing use of energy in buildings.” More efficient HVAC (heating, ventilation and air conditioning) systems are essential, with the IEA projecting that more efficient HVAC systems could cut future energy demand by 45%2. This could drive growth for companies like Trane Technologies, a global leader in HVAC system integration.

Early stage and emerging decarbonisation technologies

Hydrogen is expected to play an important role in powering transport and industry, particularly in the parts of the global economy where emissions are harder to abate. Baker stated: “Forecasts for the size of the hydrogen market in 2050 range from 600-800 million tons, vs. a current market of less than 100 million tons. Most sources project an almost 150% increase over the next 10 years. The investment opportunity set linked to hydrogen continues to evolve throughout the value chain.” There are direct and indirect opportunities to access clean-hydrogen exposure, the latter including companies such as NextEra Energy, Iberdrola and Orsted.


The macroeconomic outlook for China is mixed, and a complex geopolitical backdrop requires a careful investment approach. But for investors in climate solutions, China remains too large, innovative and important to ignore. US rules to encourage domestic product sourcing mean Chinese solar and EV equities have missed out on investor enthusiasm for the clean-tech sector in the US and elsewhere following the passage of the US Inflation Reduction Act (IRA). But Chinese clean-tech companies continue to benefit from a large, fast-growing domestic market. In 2022 China, sold 6 million battery EVs and plug-in hybrid EVs, making its EV market six times the size of the US market, and more than twice the size of the EU market.

Partly due to policy support, China now has a cluster of flourishing Chinese EV industries. Unlike in the petrol-car era, Chinese models dominate EV sales. Chinese companies that specialise in EV-specific components, such as batteries, electric powertrains and heat-management systems, have also seen significant revenue growth. In clean energy, in 2022 China added 87GW of solar photo-voltaic (PV) generation capacity, more than one-third of the global market. In the first half of 2023, China added another 78GW of solar capacity. That is driving growth for producers of solar components and strengthening their lead over international competitors. Baker said: “The scale advantages of Chinese firms are almost impossible to replicate in other markets. With domestic COVID restrictions removed and supply-chain disruptions now alleviated, Chinese solar companies are well placed to benefit from the strong volume growth at home.”

The near-term outlook for some companies in the decarbonisation investment universe is challenging. However, from a structural perspective the underlying trends supporting the growth potential of climate-solutions companies are strengthening. Across the key pathways to a clean-energy global economy investment, innovation and increasing demand for low-carbon solutions continue to drive structural growth for a select group of businesses.

Cooper concluded: “With investment in climate solutions still far short of that required to get on track for net zero in the coming decades, the potential growth runway for these companies is long. That said, care is needed. If it wasn’t obvious already, 2023 has underlined that the energy transition will be a bumpy ride, including for investors. The destination remains an exciting one, and for all its ups and downs, this year has strengthened our conviction that decarbonisation is the structural growth opportunity of our generation. But it has also confirmed our view that a highly selective investment approach, with a focus on leading businesses across sectors that are making a positive contribution to decarbonisation, is the right one to take.”

Jeannie Dumas

Communications Director (ex-Africa)

Laura Henderson

Communications Manager

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This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

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