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In May 2021 the US Environmental Protection Agency (EPA) made headlines when, for the first time in its history, it acknowledged a link between human activity and climate change. This was a significant step given the US’s status as the world’s second largest emitter of CO2 after China and given previous efforts to dial down climate change awareness during the presidency of Donald Trump – but it also demonstrates how rising global understanding of the need for environmental stewardship is feeding its way into the wider policy framework.
In addition, it highlights how the theme of environmental protection can radically rearrange the outlook for returns. Shortly ahead of the EPA’s announcement, US president Joe Biden set out his Green New Deal – a US$2 trillion investment programme which aims to support the transition to electric vehicles and to virtually eliminate the role of fossil fuels in the power grid.
For Takano, the message is clear: Investing needs to change if it is to take into account this sudden sea change towards greater environmental awareness.
Consider some uncomfortable truths and the measures being taken to address them:1
So, how might investors respond to this roll call of environmental challenges? For Takano, responding to the needs of the planet is not only the right thing to do, but also the most sensible option.
“Our view is that it makes sense for investors to gain targeted exposure to those companies offering innovative products and services to address the resource and environmental challenges we’re facing,” they observe. “Equally, companies that are best positioned to provide these solutions could benefit from future structural demand – and that should help to drive long-term earnings.”
Here, says the Takano, a focus on just four sub-themes – clean energy, efficient infrastructure, electric vehicles and resource management – could be sufficient, since they encapsulate everything from urbanisation trends to renewables; recycling to technological innovation – and much in between.
“With the unrelenting stress on the world’s environmental resources, there’s a coordination of both pressure and intent across individuals, businesses and governments to ignite action for positive change,” the Takano concludes. “By considering a wide range of environmental concerns, companies and policy makers are becoming more proactive. This, in turn, creates the potential for both winners and losers not just today but for many years into the future.”
1 Source: Newton Investment Management. January 2021.
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