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October 27, 2021

Climate Change - Clean Transport and Energy Efficiency

Changing our world to a more sustainable system is about more than wind turbines and recycling. It’s about incorporating new technologies and processes across a variety of industries. Two of such categories are clean transportation and energy efficient solutions. This article will not only cover what they are and how they work to reduce carbon emissions, but also look at their benefits as investment opportunities.

Clean transport solutions

Clean transport solutions encompass companies that will benefit from the growth of electric vehicles, battery technology and alternative transportation.

You’ve likely heard of the ambitious carbon reduction limits set out by governments and even companies around the world. But to get to a zero-carbon world, renewables will have to provide a baseload energy to the grid to ensure the continuity of supply we’re accustomed to. The issue with renewables right now is that they’re not consistent—it’s not always windy or sunny—so they don’t compete with the baseload. But with the support of a battery, renewable power can be more consistent.

Battery storage could benefit the power sector in three ways:

  • Improving power quality and reliability
  • Load shifting
  • Integration of renewable power generation.

Battery technology is a critical but sometimes overlooked element of the renewable energy equation. Yet every renewable energy facility around the world would perform better with a large, grid-style manufacturing battery to store the energy it creates. And, to support this zero-carbon future, the projected battery total addressable market (TAM) is set to grow more than ten times its current size between now and 2050.

Once those batteries can keep up with our energy demands, will the companies themselves keep up with our desired investment returns? Let’s take a look a Samsung SDI to find out.

Clean transport leader: Samsung SDI

Korean-listed Samsung SDI is a leader in large energy storage batteries that help renewables make a bigger and more dependable contribution to the grid. Their Energy Storage Solutions segment is set to benefit from the shift to renewable energy—they’ve already attained large U.S. utility companies as major customers. Samsung SDI is also one of four global leading electric vehicle battery manufacturers, making them well-positioned for exponential growth as the world shifts from internal combustion engines to electric vehicles.

These two segments—energy storage solutions and electric vehicle batteries—are barely profitable today, masking their earnings potential. In addition, these divisions make up the Large Battery segment for Samsung SDI, which we estimate could make up more than 50% of profits in five years’ time. Although Samsung SDI makes batteries for virtually everything from mobile phones to cars, it’s their large grid battery technology that makes them a clear climate winner with significant upside potential.


Energy efficiency solutions

Energy efficiency solutions focus on companies at the forefront of insulation products, electrical switches, and lighting and metering technology.

We expect energy efficiency to comprise around a quarter of all decarbonization spending globally with companies in HVAC (heating, ventilation, air conditioning), insulation products, electrical switches, and lighting and metering technology leading the charge.

Looking at HVAC retrofitting specifically, we see a US$350 billion opportunity driven by increasing government and corporate awareness in environmental, social and governance (ESG) factors, as well as stricter indoor air quality rules in a post-COVID-19 world. There are three primary factors converging to boost a significant upgrade cycle:

  • The accelerated payback on equipment in an IoT (internet of things) world
  • The age of climate-controlled buildings
  • Advances in technology allowing for continuous monitoring and adjustment of energy use.

So, with lots of influences, both external and internal, who is set to win from the investment in energy efficiency?

Energy efficiency leader: Trane Technologies

Trane Technologies is a U.S. HVAC business that delivers energy efficient systems for increased sustainability benefits.

Having committed to reducing their customer carbon footprint by one gigaton by 2030, they have cultivated a brand centred around sustainability after a decade-long repositioning. With unwavering support from governments around the world, Trane is positioned to benefit from a commercial building modernization super-cycle.

The increase in TAM for commercial HVAC equipment is estimated to be US$140 billion and represents a significant opportunity for Original Equipment Manufacturers in the space. With a track record of strong top-line performance, margin expansion and market share leadership, we see Trane as the most sensible way to play the space.

Ways to incorporate clean transport and energy efficiency in your portfolio

There are a growing number of ways to ensure your investments either take sustainable practices into consideration or invest directly in the companies and industries that are enabling the decarbonization of our planet. With CI Global Climate Leaders Fund, our goal is to create a portfolio of climate winners—companies that are best positioned to win from the growing investments and structural changes that come with fighting climate change.

About the Author

Munro Partners

Munro Partners is a Melbourne-based, independent global equity manager with a core focus on growth equities. The business is owned and controlled by key staff. It was founded in 2016 by an established investment team with a long-term proven track record of strong absolute returns.


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