The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

Investing in Solutions for Global Warming

4 min read
Terence Moll, Head of Investment Strategy, Camilla Ritchie, Senior Investment Manager26 Nov 2020

“It was terrible,” she said. “You couldn’t see two yards ahead in the street. The air in our flat was murky. And I coughed nonstop for five days. I thought I was going to die.”

That was the Great Smog of December 1952, according to an elderly lady who lived through it.

Why was London smoggy? Because poor-quality coal was used for heating, plus there was pollution from vehicles and industry. “It was like breathing ash,” she said.

London was cleaned up after the Clean Air Act was passed in 1956. These days the City’s air is the cleanest in a thousand years.

Our planet has got much hotter in the last half century. 18 of the last 19 years have been the hottest since records began.

The carbon problem

Our planet has got much hotter in the last half century. 18 of the last 19 years have been the hottest since records began.

Scientists ascribe this warming to greenhouse gases that absorb radiation from the sun and trap heat like the glass roof of a greenhouse. The more we burn fossil fuels in power stations, cars and factories, the more carbon dioxide spews into the air and the hotter the world becomes.

Last year, human activities sent about 37 billion tons of carbon into the atmosphere. That was about five tons for every person on earth. Greenhouse gasses have already heated the world by about 1ºC relative to preindustrial levels.

The Paris Agreement from 2015 was designed to limit global emissions and lower global warming to below 2ºC. Right now, that looks like a tough target. But we may well achieve it – because of two forces that are changing the world.

First, the costs of wind and solar energy have been plunging for decades. In many countries it’s cheaper to generate energy using clean technology than by using the old dirty stuff.

Clean energy from solar and wind will gradually undercut and disrupt fossil fuels, particularly as batteries improve, leading to big falls in emissions.

Second, the smog in China is pretty ghastly. Beijing and Shanghai are famous for their bad air, just like London was 70 years ago.

And the authorities are not happy about this! Three months ago, President Xi announced that China would go carbon-neutral by 2060. That was huge news, possibly more important even than the vaccine announcements this month.

China is by far the world’s largest polluter, responsible for 28% of the world’s CO2 emissions – more than the USA, EU, Japan, South Korea and Canada put together. China’s coal-fired power plants are hopelessly inefficient, and its authorities want the country to join the renewables bandwagon as soon as possible.

Clean technology plus strong policies from many governments will slash emissions worldwide over the next 30 years. London was at Peak Smog in 1952. The world is at peak emissions round about now. And the picture will start to improve soon.

One loser, several winners

What does this mean for investors?

Let’s start with the big loser. The Bank of England says that four fifths of the world’s fossil fuel reserves could be worthless if the scenario outlined above materialises. In the long run, Chevron and Shell are heading down.

On the other side, clean technologies in energy and related areas could grow by 20% per year for the next 20 years – leading to huge opportunities for the right firms.

Global warming solutions include:

  1. Clean energy – think solar, wind and batteries.
  2. Electrification – most obviously of cars, but also industry.
  3. Using resources more efficiently, like making buildings and houses easier to heat or cool down, and more efficient recycling.

If you’re a growth investor, you should focus on these areas. And by investing in them you can help to make the world into a better and cleaner place for your grandchildren.

Saving water with Ecolab

In 1923, Merrit Osborn was a travelling salesman in Minnesota in the USA. He had an idea for a product that would enable hotel carpets to be cleaned without their having to close. It was called Absorbit. It didn’t really work.

But Merritt wasn’t a quitter. Next came a dishwashing machine for hotels, which was a success. His company Ecolab later moved into food hygiene and safety and various other areas.

About 15 years ago, the new CEO Doug Baker started to think about water and water scarcity. Ecolab bought into the water solutions business in 2011 and has pioneered water-saving to its customers ever since.

Ecolab touches on our lives in many ways every day. Its microbial solutions are used in two fifths of all milk and yoghurt worldwide. It is involved with food safety in brewing and bottling and in one fifth of the water that is used to produce electricity. It’s been a core holding in the 7IM Sustainable Balance fund for about ten years.

Any reference to specific instruments within this article does not constitute an investment recommendation.

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