Investments in clean energy surge in move to a green economy

Once viewed as nice-to-have “green window-dressing”, sustainable investing has quickly become the must-have investment strategy for 2022 and beyond. 

Previously considered useful for PR (at best) or a handbrake to economic growth (at worst), several driving factors have rapidly converged to position sustainability-based investing as a high-growth opportunity. 

This is not a fleeting trend, the sustainable investment will accelerate in 2023 and beyond due to three major factors: 

1. The race for energy independence

On a micro level, the demand for alternatives — such as home-based solar solutions — has risen in tandem with fossil fuel-based energy grids faltering.

On a macro level, governments are scrambling to secure greater energy independence, not to be held hostage to fossil fuel-supplying nations that are — or are likely to become — geopolitical adversaries. 

The most stunning example of this is how EU governments have escalated investment into renewable resources, not to be held ransom to natural gas supplies from Russia.

The US’s antagonistic relationship with oil producing monoliths such as Saudi Arabia played a key role in pushing through legislation such as the Inflation Reduction Act, which allocates $369bn (R6.3-trillion) in spending on energy and climate change.

The trend is indisputable: from private citizens to governments, there is a major shift in investment into alternative, independent energy sources, and the companies at the forefront of renewable technologies are set to skyrocket.

2. Mandatory ESG investment

The environmental, social and governance (ESG) investment movement has gained momentum in recent years, with US investment giant Morningstar reporting that global investment into ESG funds doubled to R937bn in the second quarter of 2020 over the first quarter, while ESG bond volumes reached a record high of R8.3-trillion in 2020, according to data from Refinitiv. 

To put all these amounts into perspective, more than one-quarter of global assets are being invested according to: environmental (climate change mitigation, energy efficiency, waste management); social (labour standards, human rights, diversity); and governance (board diversity, transparency, closing pay gaps) criteria.

The uptick in ESG investment has been driven largely by governments mandating ESG factors be written into institutional investment policies, partly in a rush to meet UN sustainable development goals (SDG). By early 2022, mandatory ESG reporting requirements had increased to 600 globally, a jump from 383 in 2016 when the SDGs were introduced. 

The climate crisis coupled with the realisation that nations are increasingly at the mercy of oil and natural gas-producing nations, has further entrenched this trend, and we expect ESG mandates to become deeply rooted in the institutional investment sector going forward.

3. Cost-optimisation pressure

Inflation and the low-return global economic environment has pushed many major manufacturers to embrace cost-optimising technologies such as 3D printing, robotics and machine learning. 

As technology-based cost reductions are realised in the marketplace, competitors are being forced to adopt the same technologies to keep up. This is boosting investment into companies pioneering cost-optimisation and waste-reducing technologies. 

Sustainability at hyper-speed

The above factors have converged to a critical point where there is now an urgent need to accelerate and hyper-focus sustainable investment products. 

From a Sygnia perspective, sustainable investment is focused on four key pillars: infrastructure, agriculture, manufacturing and society. And there’s a lot of compelling new technology across these sectors.

• Sustainable infrastructure

Solar-to-hydrogen technology is seen as one of the most exciting growth areas in the clean energy space, with the potential to address a key challenge with renewables — the large-scale storage of electricity from variable sources such as wind and solar. 

It uses solar energy to power an electrolyser, which separates water into hydrogen and oxygen. A fuel cell then converts the hydrogen back to electricity via an electrochemical process that is efficient and emits a single by-product — water! 

For example, two US companies at the forefront of hydrogen fuel cell technology are Plug Power and FuelCell Energy. Having already landed some big-gun customers such as Walmart and Amazon, these firms have considerable growth potential as the world moves closer to a zero-carbon economy.  

• Sustainable agriculture

The truth about that juicy fillet you enjoy may be hard to swallow. Feeding the planet generates an estimated 11% of all greenhouse gas emissions, but with the global population expanding rapidly, this figure is only going to increase. 

That’s why any good sustainability-focused investment fund should include companies that are finding innovative solutions to boost food production while cutting the environmental impact of farming. A good example is company Beyond Meat, which produces plant-based meat substitutes that are as yummy as the real thing but generate up to 90% fewer greenhouse gases than farming livestock. 

Valmont Industries has pioneered irrigation technology that improves water absorption rates by 85%-90%. Another standout company in this sector is Nutrien, a Canadian firm that is using drones, satellite imagery and remote sensors to increase agricultural output to feed the world’s growing population, while using fewer chemicals and reducing carbon dioxide  emissions. 

• Sustainable manufacturing

The first industrial revolution gave us the steam engine, mechanised production and lots of smoke. The second and third industrial revolutions brought further efficiency gains thanks to mass production and automation — and lots more smoke. 

Now we have entered the fourth industrial revolution, where so-called digital manufacturing  promises a reduction in the environmental harm. The latest smart factories, such as those at Boeing and Raytheon Technologies, use technologies such as artificial intelligence, machine learning, robotics and 3D printing to increase output while reducing energy usage and pollution. 

• Sustainable society

For many, the pandemic was the first time they used platforms like Zoom or Google Meet. For others, it meant an end to the dreaded red-eye flights to make that 9am meeting in Joburg or Cape Town. For the planet, it meant a significant reduction in air pollution. While no-one on Earth is happy about the Covid-19 pandemic, it did force our global society onto a sustainable path by enabling people to connect online rather than jumping in a car or plane. 

The metaverse aims to take this to the next level, offering a virtual reality world where people can live — and work — in parallel digital realms as avatars. At the moment, the metaverse seems like a white elephant draining billions from Mark Zuckerberg’s coffers, but bear in mind that Bloomberg projects the metaverse market may reach R13.4-trillion by 2024. 

Meanwhile, big brands like Nike are teaming up with game developers like Activision Blizzard to develop branding opportunities. While Warner is buying digital land to host concerts, and Nvidia — which manufactures virtual reality headsets — is expected to surpass 34 million units by 2024. 

Regardless of whether the metaverse delivers on expectations or not, the trend is clear, online connection and virtual reality will be a more integral part of our daily life in the future, for personal and business use.

Sustainability makes sense

It’s undeniable that global economies are moving rapidly towards a more sustainable future out of sheer necessity. Any forward-thinking investor will want to invest in the assets driving this transition, which is why Sygnia has been a front-runner in thematic sustainable investment. 

While many of the asset management company's funds already include an ESG element, Sygnia now has three dedicated sustainability funds.

These include:

• Sygnia Itrix S&P Global 1200 ESG ETF, which closely tracks the S&P Global 1200 ESG Index designed to measure the performance of securities meeting sustainability criteria.  

• The Stargazer Green Fund is one of three funds in the Stargazer range designed to help parents save for their child’s future. It is a tax-free savings account with a 100% offshore investment in a diversified range of companies that pioneer one or more of the four sustainable investment pillars.

• The recently launched Sygnia Itrix Sustainable Economy ETF invests in 300 industrial and energy stocks from companies developing technology to help fight climate change, including many of the companies mentioned above.

The next time you open Zoom, watch a news clip on new ocean-cleaning tech or bite into a vegan burger that tastes like the real thing, I hope you’ll be reminded that now’s the time to put your money where your mouth (and the future of mankind) is.

This article was paid for by Sygnia.