Written By: Thomas Sørensen
& Henning Padberg
Thomas Sørensen and Henning Padberg of Nordea Asset Management discuss three areas offering climate-driven possibilities to investors: smart farming, intelligent construction and green consumerism
The popularity of the climate and environment space has grown rapidly in recent years, as investors increasingly recognise the multiple drivers supporting this long-term megatrend. Investing in climate solutions is a rational decision for consumers and corporates. In addition, the impact of climate and environment as a driver of company cash flows is under-researched and underestimated by most market participants.
While there are opportunities within the alternative energy sector, we feel that there is a benefit in targetting optimisers aiming at resource efficiency, as well as the adapters focusing on environment protection. We have identified three under-the-radar areas of the climate and environment space likely to prosper as investors increasingly access this vital megatrend.
Smart farming at an inflection point
While technological innovation and disruption has powered major advances within almost all global industries, agriculture remains the least digitised by a considerable margin. However, we believe we have now reached an inflection point in “smart farming”. Productivity-enhancing solutions in agriculture are helping to improve resource efficiency and lower the environmental footprint – while also advancing the competitiveness of farmers. The smart farming revolution has intensified in recent years due to the reduced cost of technology, which is now being deployed across a broad area of applications.
For example, we are witnessing innovative solutions in precision and automation equipment, with the use of robotics and sensors helping to improve resource efficiency in areas such as fertilisers and water. There is also software helping to enable the “connected farm”, which can improve the utilisation of assets and reduce inefficiency. In addition, innovative technologies – such as big data, artificial intelligence and drones – are powering the next leg of the current green revolution.
Most of the progress we are witnessing is coming from the corporate sphere, with many leading global agricultural groups already delivering value-added solutions to real world problems. While smart farming may currently only be a small investment area, we are witnessing tremendous potential in forward-thinking companies.
The rise of intelligent construction
Buildings are responsible for a considerable portion of global man-made carbon emissions. This is expected to get worse as the urban population increases, especially in emerging markets. It is now a priority to ensure the buildings where we live and work every day are more sustainable and less harmful for the planet. This gives rise to many opportunities for companies operating in the intelligent construction space.
Solutions range from optimising the design and construction process to energy efficient insulation materials, heat recovery systems, lighting automation and smart energy management software. All these solutions contribute positively to society by helping to lower operational costs and the environmental footprint of buildings.
Healthy growth in green consumerism
The transition from oil/synthetic towards natural/bio-based products – driven by increased environmental awareness and a desire for consumers to positively impact the environment – is now underway. The demand for eco-friendly products is growing strongly and natural and organic products are gaining market share in many countries around the world.
In order to capture the growing “green consumerism” trend, we have invested in a number of natural ingredients and sustainable packaging companies. These solution providers are the key enablers of the trend and we believe these companies will enjoy healthy growth. Branded food companies want to address the consumer desire for eco-friendly, healthy and convenient food. This means they will need to “clean up” food labels, given people want to know what they are eating. Innovation is likely to increase, yet few companies can deliver natural ingredients that do not alter the taste and feel of a product. Those that do will have an advantage in providing consumers with needed solutions.
No peak in sight
Investors frequently ask if the climate and environment sector has peaked in terms of investment opportunities. While there is a lot of interest from investors, total allocations to sustainability themed strategies remain very low. The three solutions in this piece should illustrate how much further future potential exists. Low single-digit adoption rates are rapidly increasing in the areas of intelligent construction, smart farming and green consumerism, but the vast majority of the market is still not utilising these solutions at all. Therefore, the overall outlook for climate and environment opportunities remains very strong.
Many solutions are driven by accelerating underlying drivers like attractive payback times, consumer demands, regulation and technology innovations. Great bottom-up investment opportunities are still to be found in companies that can capitalise on global climate solutions that add economic and environmental value to society.
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