Investment manager Tom King says investors are getting their heads around investing in electric vehicles, renewables and other energy efficiency businesses – what he calls the first wave of the sustainability revolution.
King is the chief investment officer at Nanuk Asset Management, which is a specialist environmental sustainability and resource use efficiency investor. His message to investors is that the second wave of the sustainability revolution has arrived.
King says: “Changes introduced in the first wave are being adopted around the world. We are past the point of no return when it comes to the use of electric vehicles and the development of renewable energy sources.
“The cost of an electric vehicle will be the same as the cost of a traditional car using an internal combustion engine by the mid-2020s. Renewables now make up 75 per cent of new power generation development.”
“But we have to accept that we have worsening climate conditions and we are moving into the second wave of the sustainability revolution because the first wave has not been enough.”
Opportunities arising from the second wave now play a big part in Nanuk’s investment strategy.
Some of the possibilities include the replacement of cement, steel and plastics as the “decarbonisation” of industrial production picks up pace; and the development of new energy sources, such as hydrogen;
Nanuk investment manager Binya Even says that, while the broad investment case is clear, making individual investment is not easy.
Even says: “Growth does not necessarily equal value. There has been a 1000 percent increase in the volume of solar panel installations since 2008 but a 90 per cent fall in the value of solar businesses [measured by Invesco Solar ETF/MSCI All Country World Index].
“That makes investing in emerging technologies hard. On top of that, government policy uncertainty adds volatility.”
The Nanuk New World Fund produced a return of 14.6 per cent over the 12 months to the end of September, beating the MSCI All Country World Total Return Index by 8.8 percentage points and the FTSE Environmental Opportunities All Share Total Return Index by 1.8 percentage points.
Over the past three years it has produced an average return of 17.6 per cent a year, beating both the indexes it uses as benchmarks.
Even says Nanuk applies conventional value metrics, looking for good quality companies at fair prices.
Nanuk is an investor in Vestas, the world’s largest wind turbine manufacturer, believing its scale gives it a lot of advantages.
Another of its holdings is Solar Edge, which makes solar inverters and is a leader in the field. Nanuk says it has a significant technology edge over its rivals.
“These companies make good products and they have good management. Those ingredients work in this space just as they work in any other space.”
One of its second wave themes is transport, where it sees a shift away from air travel, which produces the highest level of emissions per passenger. Rail is the lowest emitter.
Nanuk is an investor in Central Japan Railway, a developer and operator of high-speed rail links that compete with airlines on domestic routes.
Another theme is replacing high-energy industrial materials, particularly plastic, cement and steel. Nanuk is an investor in Lenzing, an Australian company that makes textiles out of sustainable wood production. Fashion retailers Zara and H&M have highlighted the fact that they sell clothes with a Lenzing product called Tencel.
It is also an investor in Finnish company Stora Enso which makes packaging and building products with renewable timber. Apple recently changed its packaging to a Stora Enso product.