The European Union has embarked on a green transition, aiming to reduce CO2 emissions by 55% by 2030, with a view to achieving carbon neutrality by 2050. This plan, called Fit for 55, includes a large number of components. “The stakes associated with the Fit for 55 regulation are massive,” said Pauline Grange (fund manager at Columbia Threadneedle), “and the invasion of Ukraine has shown us that Europe is particularly vulnerable in terms of its supplies from Russia.”
This has prompted the European Union to go even further by recently proposing a new plan called REPower, which takes the ambitions of Fit For 55 even further. The ambition is to accelerate the deployment of renewable energy production (solar and wind) and to reduce imports from Russia very quickly, so as to no longer be dependent on Vladimir Putin’s regime by the end of the decade.
She stresses that one of the challenges of this transition will be to speed up the granting of permits for the installation of this new capacity, as the current procedures are sometimes extremely long in the face of the urgency of the situation. “The efforts to be made will be a source of opportunities for investors over the next twenty years,” including renewable energy producers (Orsted, Enel, EDP Renewable), equipment companies exposed to the upgrading of electrical networks (Schneider Electric) and groups implementing storage solutions (Samsung SDI). “Mining groups will also benefit from this transition, and they are now making great efforts to adopt greener production processes.”
Agriculture and mobility
Green mobility is another source of opportunity Grange identified, in the context of reducing dependence on fossil fuels by 2030. “The demand for electric vehicles is rising sharply in Europe, as is investment in infrastructure for charging cars, despite the fact that the cost remains high due to the rising price of the metals needed to manufacture batteries.” Groups such as Samsung SDI, Schneider Electric or Infineon are identified as winners in this area.
The development of a more sustainable agriculture is also at the heart of various solutions that will make it possible to feed the world’s population while limiting negative externalities. “Agriculture is currently the source of 12% of greenhouse gases, while being a major consumer of fertilisers and the cause of massive deforestation that damages biodiversity. John Deere and Trimble are now leaders in the implementation of this precision agriculture, which makes it possible to significantly reduce the use of fertilisers while increasing crop yields.”
Green real estate
Finally, Grange also points out that efforts will also be needed in terms of energy efficiency, notably by better insulating new buildings and renovating existing stock. “A group such as the Swiss company Sika is currently at the forefront of developing a greener, recyclable cement that reduces CO2 emissions by 25 to 35% while using less drinking water, with the aim of eventually achieving a 50% reduction in emissions. “
Trane Technologies provides air conditioning systems that emit significantly less CO2, a crucial issue for at-risk populations (children, the elderly) in heavily populated cities. “Leadership in innovation is now enabling this US group to grow significantly faster than the rest of the market.”
Quality and resilience
Grange is in charge of the Columbia Threadneedle (Lux) Sustainable Outcomes Global Equity fund, a sustainable product launched in 2021 that will explicitly target companies that have a positive impact on various issues in our modern societies, be it in the energy transition, healthcare, the development of financial services in emerging countries or efforts to save drinking water.
The portfolio is concentrated around forty stocks, with a geographical exposure that favours Europe over the other major economic blocs. “We aim for a limited rotation of positions, with a turnover that should be around 20% per year. This product also meets the requirements of Article 8 of the European SFDR regulation, with the ambition to meet the requirements of Article 9 in the near future.”
This article originally appeared in French on Investment Officer BE.