Energy efficiency, pollution control and the impact of fracking are all making the headlines. It’s been good to be green over the last year, with figures from the Department of Energy and Climate Change showing a sharp rise in power coming from renewable energies. The Sector Specialist: Environmental sector covers an increasingly diverse range of companies, from alternative energies through to water and waste, and there have been three new launches this year alone (see table on page 3).
The Environmental sector is up an average of 29% in share price total return terms over one year, compared to a wider industry average of 16%, although over the longer-term, it has been a more volatile ride. Environmental funds also tend to appeal to ethical investors, and with National Ethical Investment Week beginning on 13 October, will popularity for environmental strategies grow further? What is the outlook for the Environmental sector?
The AIC today hosted a press roundtable lunch on the sector with Bruce Jenkyn-Jones, Manager, Impax Environmental Markets plc, Charlie Thomas, Manager, Jupiter Green Investment Trust and Stephen Lilley, Partner, Greencoat UK Wind. Their views have been collated along with those of Richard Crawford, Director, Infrastructure at InfraRed Capital Partners, the investment manager to The Renewables Infrastructure Group (TRIG) and Jamie Richards, Partner of Foresight Group, who are launching the Foresight Solar Fund Limited.
The outlook for the environmental sector
Bruce Jenkyn-Jones, Manager, Impax Environmental Markets, said: “Growth in global population, increases in urbanisation and higher living standards are accelerating the demand for resources world-wide. We see many interesting investment opportunities in high growth companies that are providing solutions in energy efficiency, renewable energy, water, resource and waste recovery and food and agriculture markets to optimize the delivery and use of these resources. Impax’s proven strategies provide investors with broad access to these diverse, high growth markets.”
Charlie Thomas, Manager, Jupiter Green Investment Trust, said: “If further economic recovery is sustained it could lead to a considerable pickup in environmental markets. This has happened in previous economic cycles I have witnessed over the ten years I have been managing environmental portfolios. Driven by greater production of air pollution, waste, water and use of scarce natural resources, the demand for environmental solutions typically accelerates.
“The area of environmental investing clearly illustrates the benefits of investing over a longer timeframe. The long term structural drivers of growth are still very much in place and indeed increasing. The volatile and insecure conditions which had undermined the sector since the financial crisis are becoming more benign. We are seeing a consequent pick up in both interest and potential returns from a range of diversified industries and companies across many parts of the globe. This coupled with a more settled political climate lead us to the belief that the next ten years will be as exciting as the last.”
Stephen Lilley, Partner, Greencoat UK Wind, said: "Many institutional investors are struggling to find long-term inflation linked yield to immunise defined benefit and other long-term liabilities. Renewable generation assets – particularly wind – provide one such stable, inflating, income stream and have a very low correlation with GDP and the broader stock market. Whilst wind generation was once considered part of the alternative investment sector, it is now a mature technology, and is finding a place in core portfolios."
Richard Crawford, Director, Infrastructure, InfraRed Capital Partners, the investment manager to The Renewables Infrastructure Group (TRIG) said: “With the demanding UK and EU-wide carbon reduction targets placing renewables as a key element in the future energy generation mix, we continue to see extensive growth opportunities – both in onshore wind and, especially in the near term, in the UK’s solar PV segment. A broad range of attractive sites, reducing technology costs and strong regulatory support are creating momentum in the sector’s expansion.”
The new renewables – solar power
Jamie Richards, Partner of Foresight Group, who are launching the Foresight Solar Fund Limited, said: "Solar power has been the biggest source of new electricity generation for the past two years in Europe. This year the UK is seeing a significant increase in installed capacity of utility scale solar PV power plants based on Government support in the form of the Renewable Obligation Certificate (ROC) regime which provides a stable 20 year revenue stream that increases in line with RPI. The ROC regime combined with recent significant reductions in the cost of solar equipment provides a timely opportunity to launch Foresight Solar Fund Limited, coinciding with the new capacity coming on stream. Foresight Group has binding commitments for a portfolio of solar assets that the Company can invest in from the outset, which will give investors access to the more predictable financial returns that UK solar offers over wind.”
Share price total return on £100 lump sum
For performance data, portfolio information, yield data, stock exchange announcements and more for AIC member companies, visit www.theaic.co.uk