Countries and companies are working towards cutting their carbon footprints.
Right now, we're on the brink of a massive overhaul in key sectors like infrastructure, energy, utilities, transportation, buildings, agriculture, water management, and waste management.
The global push for net zero emissions by 2050 isn’t just a critical environmental and social goal, it’s also an achievable one for most sectors with existing technology. The challenge lies in scaling up these climate solutions and making them affordable and deployable at a bigger scale.
This article isn’t personal advice. Investments can rise and fall in value, so you could get back less than you invest. If you’re not sure if an investment’s right for you, ask for financial advice.
Investing in climate change – a growing opportunity?
Climate investing has grown significantly in recent years. Investment into funds and Exchange Traded Funds (ETFs) with climate-related strategies surged by 16% in 2023 to $540bn. This was driven by continued inflows, product development, and a rising market.
Clearly, there are strong and real investment opportunities in climate solutions.
More investors are looking to capitalise on these opportunities by investing in companies working to slow climate change or adapt to it. This might be in sectors like clean energy, electric vehicles, carbon capture and storage, and flood defences.
Investors can now access a variety of funds that target both early-stage tech innovations and the physical rollout of low-carbon infrastructure.
Here are two promising funds that offer an opportunity to invest in the exciting field of climate solutions.
Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
For more details on each fund and its risks, use the links to their factsheets and key investor information.
Ninety One Global Environment Fund
The managers of the Ninety One Global Environment Fund invest in companies they believe contribute to positive environmental change through sustainable decarbonisation.
Almost half of the fund is invested in the industrials sector. This includes Contemporary Amperex Technology, the Chinese battery manufacturer and technology company otherwise known as CATL.
Batteries are key for storing renewable energy and one of the main uses of CATL’s batteries is for electric vehicles. Last year, CATL announced a partnership with car manufacturer Ford to help it scale up battery capacity.
In 2023, the global electric vehicle battery industry saw a 38.6% year-on-year increase. This trend could create significant opportunities for companies like CATL.
Investors should note that the fund invests in relatively few companies. This, combined with the managers’ flexibility to invest in emerging markets, adds risk.
FP WHEB Sustainability
The team behind the FP WHEB Sustainability fund invest based on nine sustainable investment themes. These range from resource efficiency and sustainable transport to water management and cleaner energy.
Resource efficiency is a key theme because of the need to increase energy efficiency by around 4% per year to limit global warming to less than 1.5°C.
Under this theme, the fund invests in Trane Technologies, a world leader in air conditioning systems and services. The company also makes an innovative type of heat pump which is 300% more efficient than the system it would replace.
Nearly half the fossil fuel gas consumed in the UK each year goes on heating. Heat pumps take heat from the ground or external air and transfer it either to water or internal air using electricity instead of burning gas or oil.
Heat pumps are a key climate solution, so much so that the UK is targeting the installation of 600,000 heat pumps per year by 2028. The new Labour government has indicated its support for a rapid national heat pump rollout. Companies in this field, like Trane Technologies, could benefit from this market expanding.
The fund's focus on small and medium-sized companies adds risk.
The managers only invest in companies with products or services fitting the themes of clean energy, water, pollution abatement and healthcare. So, there will be limited numbers of companies which fit these themes and this limitation might constrain growth compared to other funds which can invest in the broader market universe.
