Investing with an eye on sustainability is not brand new. The FTSE Environmental Opportunities Index, for instance, has comfortably beaten the MSCI All Countries Index each year for the past 15 years, annualised. The “sustainability revolution” has already started, according to Nanuk Asset Management.
At a presentation for about 40 investors and advisors in Sydney last week, Dan Powell, Nanuk’s head of distribution who joined the firm last year, said that the three key ingredients for investors with the sustainability revolution were:
- Transformative: with technology and innovation; consumer trends; government policy; and, increasingly viable economics
- Pervasive: “every industry in every country will be impacted in some way”, and
- Investable: with a large and attractive investment universe – estimated at about US$6 trillion or three times the size of the Australian share market – which is often overlooked by traditional fund managers.
Tom King, the boutique’s CIO, said the global economy must change “because we can’t keep going down the path we’ve been going”. The world is not big enough. Importantly for investors and the companies they invest in, change was increasingly coming about, not because of government action or even consumer preferences, but because more technological changes are allowing incremental improvements in costs.
The cost of producing solar power, for instance, had come down 85 per cent in the eight years that Nanuk had been in business. Similarly, the cost of producing a lithium battery for a car had dropped 80 per cent since 2013. When Tesla’s lithium battery factory in Nevada was completed, it would be the largest building in the world.
King listed several key sustainability-related investment trends:
- Electric vehicles: there’s a rapid transition of the auto industry towards electrification
- Autonomous driving: the other big auto trend, with the rapid adoption of active safety and advanced driver assist (ADAS) technology providing partial autonomy. The second level is hands-off driving (currently illegal) and then “eyes off” and “hands off” driving for level three. There were 174 electric vehicles on show at the recent motor show in Beijing, with 70 per cent of them being Chinese.
- Solar: huge growth in recent years driven by increasing economic viability; overcapacity and commoditisation; and the emergence of virtual power plants
- Wind: regulatory changes have led to lower cost and new growth; rapid growth in offshore wind power generation
- Energy storage: commercial viability of large-scale ESS to replace gas turbines; commercial viability of ‘behind the meter’ storage
- Collaborative robotics, where robots work alongside people, such as with robotic surgery
- Waste management recycling and pollution control
- Better food production techniques, and
- Use of advanced and sustainable materials.
Of course, not all aspects of technological advances are good. Tristan Patience, Nanuk portfolio manager, said the firm had invested in a car-parts recycling company, Coparts, which also re-builds whole cars after they had been written off in accidents. He said that car write-offs had been declining since 1995 but then started to turn up again around 2011 largely due to all the distractions inside a modern car, from mobile phones to the inbuilt gadgetry.
And not all sustainable investments need to be high-tech. Nanuk also invests in three salmon farming companies. Farmed salmon has higher protein retention and a higher edible yield than chickens, pigs or cattle. Amazingly, it also uses less water.