Henning Padberg and Thomas Sørensen
Portfolio Managers of Nordea’s Global Climate and Environment strategy
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 mega trend. Despite this, for some in-investors, there remains a belief that climate and environment solutions essentially begin and end in the alternative energy sector. However, this narrow description significantly understates the available opportunities.
Before the financial crisis a decade ago, the climate and environment scene was mostly driven by politics, in areas such as subsidies and regulation. Today, it’s all about economics. Investing in climate solutions is a rational decision for consumers and corporates. In addition to this, the impact of climate and environment as a driver of company cash flows is under researched and underestimated by most market participants.
While we do look for innovators within the alternative energy sector, the majority of our strategy targets optimisers aiming at resource efficiency, as well as the adapters focusing on environment protection. Here, we outline three under-the-radar areas of the climate and environment space likely to prosper as investors increasingly access this vital megatrend.
Smart farming is at an inflection point
If society wants to ensure our planet’s resources are not depleted and can last for future generations, the resource-intensive agriculture sector must be optimised. 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 a 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 re-source 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 farm-ing may currently only be a small investment area, we are witnessing tremendous potential in compa-nies such as AGCO and Trimble.
The rise of intelligent construction
Buildings are responsible for a considerable portion of global man-made carbon emissions. This is ex-pected to get worse as the urban population in-creases, 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 harm-ful 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.
We have identified several attractive investment cases currently undervalued by the market. Auto-desk is one of the well positioned companies to benefit from this demand, due to its building information modelling software driving increased effi-ciency across the entire construction value chain.
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 ecofriendly 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 packing companies. These solution providers are the key enablers of the trend and we believe these companies will enjoy healthy growth. Irish company Kerry Group specialises in providing natural ingredients to replace artificial additives. Branded food companies want to address the consumer desire for ecofriendly, 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. Kerry’s extensive knowledge allows it to provide clients with the needed solutions.