A Climate of Opportunity

While the world has been preoccupied with a certain virus, another epidemic has emerged alongside it—the rush for nations and corporations to announce carbon reduction targets to address climate change. More than just policy, we see this shift as the biggest investment opportunity since the advent of the internet.

The decarbonization tipping point

Global momentum around climate change has been building for years. But we believe now is the tipping point whereby the decarbonization of the planet is inevitable. Virtually every European country has committed to eliminating net carbon emissions by 2050, with China announcing a 2060 target. U.S. President Joe Biden is reinvigorating the climate agenda, recently announcing that the U.S. will target a 50% reduction in net greenhouse gas pollution by 2030 and zero emissions by no later than 2050.

It’s important to note that the ‘zero carbon’ 2050 target does not mean emitting any more carbon—it means emitting no carbon.

These ambitious political commitments are being mirrored in the corporate world. Rather than taking a ‘wait and see’ approach, companies are transitioning to a low-carbon future independently of government mandates. Much of this is driven by the overwhelming demand for environmental, social and governance (ESG), and other socially responsible initiatives from customers, employees and shareholders. Virtually every company we meet is talking about their sustainability goals.

The biggest investment opportunity since the internet?

Last year, global investment in the transition to low-carbon energy broke the US$500 billion barrier for the first time and was more than twice the 2010 total, according to figures from BloombergNEF. We designated climate change as an Area of Interest (AOI) in our fund strategies in 2019 and then again in October 2020, seeing it as increasingly important in the COVID-19 era.

Climate-related investment is only likely to accelerate from here. In many ways we liken its current state to the early stages of the technology boom, with many climate change companies set to grow drastically. On top of this, funding the climate epidemic will be extremely costly—potentially surpassing US$30 trillion between now and 2050—given the ambitious carbon goals.

The chart below shows our estimated breakdown of where this huge investment will need to be made and which sectors are deemed to benefit. In Europe alone, we foresee investment as high as US$8.3 trillion across areas such as renewables, energy efficiencies and charging stations for electric vehicles.

Source: Goldman Sachs, Munro Partners Estimates (December 31, 2020).

The race to net zero

As your global growth investor, it’s our job to identify structural changes and find the companies we think will benefit in the months and years ahead. Climate is at the very start of its journey, with many new technologies still early in the adoption phase, and therefore have the potential for significant growth.

Of course, fighting climate change is about more than just clean energy and electric vehicles. We’ve identified four structural categories that could produce climate success stories in the decarbonization of our planet:

Clean energy

Companies at the forefront of renewable energy generation covering wind, solar and renewable diesel.

Clean transport

Companies benefiting from the growth of electric vehicles, battery technology and alternative transportation.

Energy efficiency

Companies at the forefront of insulation products, electrical switches, lighting and metering technology.

Circular economy

Companies most likely to benefit from efforts to improve recycling, alternative packaging materials and wastewater management.

Growth winners

While it’s important to formulate long-term thematic views, we also need to maintain our rigorous bottom-up analysis and valuation models on all positions within our portfolios. At the individual stock level, there will be only a handful of climate winners and a long trail of losers.

Many businesses—including corporate household names—will either adapt or perish. The established airline and automotive industries are particularly vulnerable, along with fossil fuel producers and the industries that rely on them.

In finding the companies that will benefit over the long term, we’re aware there is more than just a political will to address climate change. There is also an economic rationale. For example, renewable energy is now cheap enough to compete with fossil fuels. One of the main reasons we’re increasingly bullish on climate stocks is that so much of the sector is now less reliant on government subsidies.

Cheaper renewables

Source: IEA, New Street Research, Munro Partners, May 31, 2021

Greener pastures

With climate change now high on the agenda for governments, corporations and investors, it’s clear that huge investment opportunities will emerge in new technologies. Not only have governments set ambitious carbon reduction targets, but much of the corporate world is independently seizing on the opportunity.

Of course, there will be winners and losers, and some stocks may get ahead of themselves in the short term. Our aim with CI Global Climate Leaders Fund is to create a portfolio of those climate winners that are set to benefit from the structural change for years to come. All of us at Munro are positioned for the long haul to monetize and support this monumental shift in attitudes towards preserving our planet for future generations.

IMPORTANT DISCLAIMERS

Commissions, trailing commissions, management fees and expenses all may be associated with an investment in mutual funds and exchange-traded funds (ETFs). Please read the prospectus before investing. Important information about mutual funds and ETFs is contained in their respective prospectus. Mutual funds and ETFs are not guaranteed; their values change frequently, and past performance may not be repeated. You will usually pay brokerage fees to your dealer if you purchase or sell units of an ETF on recognized Canadian exchanges. If the units are purchased or sold on these Canadian exchanges, investors may pay more than the current net asset value when buying units of the ETF and may receive less than the current net asset value when selling them.

This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or construed as an endorsement or recommendation of any entity or security discussed. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document. All charts and illustrations in this document are for illustrative purposes only. They are not intended to predict or project investment results. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what CI Global Asset Management and the portfolio manager believe to be reasonable assumptions, neither CI Global Asset Management nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.

Companies mentioned may or may not be held by Munro Partners’ funds and are used for illustrative purposes. The information contained in this document reflects, as of the date of publication, the views of Munro Partners and sources believed by Munro Partners to be reliable. There can be no guarantee that any projection, forecast or opinion in these materials will be realized. The views expressed in this document may change at any time subsequent to the date of issue. This information has been prepared without taking account of the objectives, financial situation or needs of individuals. Past performance information given in this document is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance.

Munro Partners is portfolio subadvisor to CI Climate Leaders Fund offered and managed by CI Global Asset Management.

Certain names, words, titles, phrases, logos, icons, graphics, or designs in this document may constitute trade names, registered or unregistered trademarks or service marks of CI Investments Inc., its subsidiaries, or affiliates, used with permission. All other marks are the property of their respective owners and are used with permission.

CI Global Asset Management is a registered business name of CI Investments Inc. ©CI Investments Inc. 2021. All rights reserved. Published October 13, 2021.