While this is welcome, it is clear that the climate will need more than a single day of action. The way you invest can make a significant difference, but after a difficult run for renewable energy investments, do you have to sacrifice profits for principles?
Climate change is as pressing an issue as ever. The earth’s average surface temperature in 2023 was the warmest since record-keeping began in 1880. Overall, the earth was 1.36 degrees Celsius warmer in 2023 than the late 19th-century pre-industrial average. These rising temperatures are being seen in extreme weather events across the world. Many Governments have started to treat climate change as an emergency.
However, this urgency is not universal. Populist politicians are increasingly pushing back on climate change targets. At a rally in Pennsylvania, Donald Trump labelled climate change a “scam”. This is in spite of Hurricane Helene’s recent trail of destruction across the Southeast US, with the deaths of more than 100 people.
This reluctance from policymakers has prompted some questions over whether the growth trajectory for companies providing solutions to the climate crisis will be as strong as expected. The iShares Global Clean Energy ETF is often seen as a barometer of sentiment towards the clean energy sector. It has been steadily falling since early 2021 after a giddy rise during the pandemic.
Regulatory direction
Yet it is clear that the march of regulation still favours businesses that care about their carbon footprint. The EU is expanding its Corporate Sustainability Reporting Directive (CSRD). From 1 January 2024, all large companies and listed SMEs that operate in the EU (around 50,000) will need to report on their climate impact – and begin publishing regular reports in 2025 for the financial year 2024.
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The Carbon Border Adjustment Mechanism (CBAM) started its trial phase in October 2023. This means the EU’s trading partners will have to report the greenhouse gas emissions tied to their exports.
In the UK, the final coal-fired power station has just closed. The new Labour Government has promised “a sprint for homegrown clean energy”, with the aim of making the UK a clean energy superpower. In its early months in office, it has lifted the onshore windfarms ban, established a new national wealth fund for green investment, and announced the launch of Great British Energy.
Admittedly, the US is a more complex picture, with the upcoming presidential election a key swing factor. The country has made significant progress on renewable energy and infrastructure with capital from the Inflation Reduction Act. By August 2024, companies had announced more than 300 Inflation Reduction Act-related clean energy and clean vehicle projects across the country. It is notable that the majority of those projects are in congressional districts represented by Republicans, so it is possible that Trump will not roll back the rules as expected.
There is a final consideration. Artificial intelligence (AI) is energy-intensive. Those who are facilitating the AI revolution will need to find reliable sources of energy to store and interrogate the data needed for AI. Bill Gates is moving ahead with nuclear power to support AI development. Other groups are looking at localised renewable energy generation. Either way, new sources are needed.
But what does this mean for investors?
Deirdre Cooper, co-manager on the Ninety One Global Environment fund, says the recent difficulties for the green energy sector have been driven by two main themes. The first is related to concerns around China. There were worries about the overcapacity of Chinese electric vehicles (EVs) and solar, and also the level of tariffs likely to be imposed on China by whoever occupies the White House next year.
She adds: “The second theme is the advance of populist policy in the US and Europe, threatening decarbonisation ambition and policy support. The increasing likelihood of a Trump presidency and the growth of populism across the EU are causing investors to question the direction of travel for climate policy in more voter-conscious areas, such as EV adoption and renewable energy development.”
However, she views this as a threat to sentiment rather than having a real-world impact on demand. That would suggest that share price falls have been overdone.
Also, it’s important to note the success stories. David Harrison, manager of the Rathbone Greenbank Global Sustainability fund, points to companies such as smart-grid designer Schneider Electric, which has seen strong share price performance in the past year.
He has been investing in sustainable data centres and other areas linked to the development of sustainable infrastructure, saying: “We added to American Tower, which owns mobile network transmitters, and Hannon Armstrong Sustainable infrastructure, which develops and operates a range of projects, from energy efficiency to renewable energy and sustainable infrastructure.”
He sees considerable opportunities in the sector today.
Share prices have come down a lot for companies addressing climate change, and this may represent an opportunity for investors. On Climate Action Day, your action could be to support renewable energy through your wallet. It’s a welcome low-energy option.
Darius McDermott is the managing director of FundCalibre and Chelsea Financial Services
