Environmental Investing at Pictet Asset Management

Marketing Material

A lightbulb moment for the planet

Pressure is mounting on governments and businesses to reverse decades of environmental degradation and to safeguard the world’s natural resources for future generations. Investors can play their part by providing capital to companies developing solutions to environmental challenges. In doing so, they can contribute to a more sustainable future whilst also potentially generating an attractive return.

There is precedent for technology to help us solve our environmental issues. In the 1960s a scientist found that a semiconductor he was tinkering with produced a weak glow. No one then could have guessed at the revolution that would be unleashed by the introduction of the first light-emitting diodes (LEDs), which consume a fifth of the electricity of their predecessors and have dramatically reduced energy use across the globe.

The LED is just one of many environmental technologies that have transformed our impact on the environment. Here, we look at five areas where investors, and the companies they invest in, can help make a positive impact on the environment.

5. Plastic alternatives

Hailed as a miracle material when it was invented, plastic has fast become the planet’s worst nightmare. Since 1950, some 8.3 billion tonnes of plastic were produced worldwide, of which only 6 per cent has been recycled¹. One refuse truck-worth of plastic is dumped into the sea every minute, and some fishermen now catch more plastic than fish².

Companies are now producing technologically-advanced alternatives to plastic that could change things. In the fashion industry, brands such as Stella McCartney and Prada are using Econyl³, a material made from industrial waste (including fishing nets) which reduces greenhouse gas emissions by 58 per cent compared to nylon. Wood-based materials such as Cupro, Viscose, and Lyocell are also being used in everything from gym outfits to fire resistant clothing.

Plastics still account for more than half of the global food packaging market, but 500 million tonnes of plastic could be replaced with wood-based materials⁴, with the latest carton packaging allowing food and beverages to be stored for up to 12 months without refrigeration.

4. Better water use, efficiency and recycling

A quarter of a per cent. That’s how much of the world’s water is usable. The rest is too salty, too polluted or too frozen. As our population grows so does the demand for this vital resource, which is already scarce. 40 per cent of the world don’t have access to sufficient clean water⁵ and the situation is deteriorating fast.

The solution is to use less water and to use it more efficiently. Technology can play a big part. Agriculture accounts for around 75 per cent of all fresh water use⁶, but precision irrigation can reduce both the amount used and the pollution it causes, through reduced herbicide and pesticide use.

In cities, high-tech sensors can help to detect leaks early and even forecast in advance which pipes are about to start leaking.

As well as using and wasting less water, we need to recycle more. The waste water recycling market is growing at 20 per cent a year⁷, with nanotechnology and membrane filtering among the key innovations.

3. Renewable and more efficient energy

Every year, 40 gigatonnes of carbon dioxide (CO₂) – the prime culprit in global warming, is released into the atmosphere. In order to put the brakes on destabilising, man-made climate change, the net release of this greenhouse gas needs to drop to zero.

Cleaner sources of energy production will help. For example, by abandoning coal, UK CO₂ emissions have dropped 29 per cent over the past decade and are now the lowest they’ve been since 1888⁸. Renewables such as wind, solar and tidal already provide a third of UK electricity, and are fast becoming cheaper than fossil fuels.

Carbon capture and storage (CCS) can be as simple as planting trees and generating biomass, or as complex as using new technology to suck CO₂right out of the air and lock it up in stone or concrete, or back into old oil or coal seams. The CCS market is growing 14 per cent a year and is projected to reach USD5.6 billion by 2026⁹.

Energy efficiency is key. For instance, LEDs have helped drop UK electricity demand back to 1984 levels⁸and globally, energy efficiency represents about 40 per cent of potential reductions in greenhouse gases¹⁰.

Companies developing smart buildings, better design, insulation and materials will benefit from the drive to use energy more efficiently.

2. Pollution reduction and removal

Air pollution alone kills almost 9 million people a year and cuts three years from our life expectancy¹¹whilst more people die from unsafe water than from all forms of violence including war¹².

The growth of ever more densely populated cities threatens to make matters worse.

But disaster can be avoided. With smarter urban planning and the development of pollution-reducing technology, dirty air and water could be consigned to history.

The global air pollution control market is expected to grow dramatically in the next few years, reaching over USD100 billion by 2027⁷. Similarly, companies developing advanced water filtration and recycling technologies are helping to build a sustainable water system fit for the future.

1. Environmental investment funds

An effective way to protect the planet for future generations is to invest in companies developing solutions to its most pressing environmental problems. The environmental solutions sector is thriving – at USD2.5 trillion in size, it is growing at 6-7 per cent per year⁷.

Environmental funds invest in some of the world’s most environmentally-responsible companies, and those building products or services to help solve environmental challenges such as climate change, air pollution and a lack of clean water, such as those highlighted above.

And investing to safeguard the planet doesn’t necessarily mean having to sacrifice performance. An increasing body of research research indicates that companies with stronger environmental, social and governance (ESG) values are likely to outperform the broader market over the long-term, and prove more resilient in market downturns¹³.

Even a small investment can make a big environmental impact across a whole range of factors - from CO₂saved to renewable energy generated, or a reduction in the amount of fertiliser washed into our lakes and oceans.

1 Source: Our World in Data, September 2018.
2 Source: The Guardian, March 2019.
3 Source: Aquafil 2015 Sustainability Report.
4 Source: Lenzing, company website, January 2019.
5 Source: UN Water Action Decade, March 2018.
6 Source: Encyclopedia of Water Science, Second Edition.
7 Source: Pictet Asset Management, June 2020.
8 Source: Carbon Brief, March 2020.
9 Source: Bloomberg, March 2020.
10 Source: EU 2030 Climate & Energy Framework.
11 Source: Air Quality Life Index, November 2018.
12 Source: UN World Water Day, March 2010.
13 Source: Morningstar, Axioma & Boston Consulting, 2020.

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