How green investing can create long-term value?

An opinion piece Damian Payiatakis, London UK, Head of Sustainable & Impact Investing at Barclays

Until COVID-19, climate change was central to the agenda for many governments, companies, and people – and increasingly investors too. Rightly, attention has shifted to manage the human and economic hardship facing many because of the pandemic.

The immediate crisis and related economic shock, however, takes place in the shade of a long-term environmental challenge. As the pandemic persists and markets struggle, investors should not disregard the need and opportunities to transition to a low-carbon economy.

For investors, focusing on opportunities with a longer time horizon may help them to endure short-term volatility and find growth prospects too.

Investors who want to use their capital to make a positive contribution to a more sustainable future have a range of investment opportunities. Given the scale of environmental challenges, these tend to also be growth markets for companies with effective solutions. Aligned with our sustainable world structural theme, we highlight the many entry points for investors.

Addressing energy transitions

Clean energy and associated value chains that accelerate the low-carbon transition are growth markets. Moreover, stimulus to develop green infrastructure not only addresses environmental issues but also helps to support a green recovery and growth. As investor sentiment appears to shift further towards clean energy players, the sector has profited from a push for cleaner fuels from Europe to China; targeting net-zero emissions by 2050 and 2060 respectively.

Investors will have options across the value chain. Even as solar and wind power become the “new normal”, offshore wind, emerging technologies, and fuels such as battery storage, biofuels, geothermal and hydrogen seem to be increasingly part of company and state energy transition plans. Even traditional fossil fuel companies are seeking to offer an integrated approach to supplying energy – including renewables, backed up by natural gas with carbon offsets.

Sustainable living and agriculture

To keep pace with the challenges presented by the pandemic, the escalating sustainability commitments and the ongoing urbanisation will require unprecedented investment and innovation. Smart cities and smart city infrastructure, therefore, offer various investment opportunities. Within cities, not only do the buildings need to become smarter, but the infrastructure and economic production (both manufacturing and services) need to evolve.

As the world’s largest sector, the World Bank estimates the food industry to account for over 10% of global gross domestic product, employing billions of people. For companies and investors whose goal is to make the global food and agriculture system more sustainable and to create better connectivity between producers and consumers, there are various opportunities available. These include advanced ag-tech, reforestation, regenerative agriculture, biodiversity-friendly practices, long-term biotech advances and sustainable production and consumption methods. Companies aiming to reduce greenhouse gas emissions using sustainable agriculture practices by leveraging technology should create further investment opportunities.

Companies that invest proactively in sustainable production methods can appeal to consumers and investors that are increasingly aware of biodiversity.

Moving to a circular economy

In a truly circular economy, economic activity may use natural capital, but also restores overall health of the system. Moving to a more circular economy isn’t only about reducing negatives or recycling. Rather, it represents a systemic shift to generate growth and abundance, while providing environmental and societal benefits. A more circular economy can also help reduce the environmental impacts of production and consumption, reduce waste, drive greater resource productivity, and address emerging resource security/scarcity issues in the future.

While these principles apply universally, investors can look to sectors which are most resource and waste intensive for the highest potential. This includes electronics and information communications technology; batteries and vehicles; packaging; plastics; textiles; construction and buildings; food; water and nutrients.

Growth of green portfolios

With a variety of stakeholders seeking to support planetary health, companies offering commercial solutions to (unfortunately) growing sustainability issues should expand too. This may make such options appealing for investors seeking portfolio opportunities to explore more actively in 2021, while recognising the long-term nature of most of these investments. In the end, the opportunity to deploy capital in a way that not only can grow assets but also positively contribute to society and the environment could be attractive for many investors.

With returns from traditional approaches looking challenging in the short term, it may be time to concentrate on longer term options. Addressing climate change, with renewed focus from governments and companies likely in 2021, can offer attractive growth opportunities, while protecting the planet.