One minute to midnight: Investment company managers on COP26, climate change and portfolio stars

by | Nov 2, 2021

With COP26 underway, the Association of Investment Companies (AIC) has spoken to Alliance, Witan, Brunner and Martin Currie Global Portfolio investment companies about climate change. They discuss what they’re expecting from COP26, the portfolio companies doing most to tackle environmental impact and where climate change is presenting the most attractive opportunities for investors.

COP26’s impact

Zehrid Osmani, Manager of Martin Currie Global Portfolio Trust, said: “COP26 could bring increased incentives or subsidies for companies and households to reduce their carbon emissions, as well as increased regulation to tax higher-emitting areas of the economy. It could also bring some bigger momentum in terms of coordinated investment programs to continue to tackle climate change. As part of that, there will be a need to ensure a smooth transition of energy usage towards greener energy sources, avoiding unintended consequences such as rapid cost escalation.

“We could see a more coordinated approach towards carbon emissions tax and credits. Investors need to have a detailed assessment of carbon emissions intensity for each business they are invested in, as well as a good knowledge of how each company is tackling the path to net zero, and what it will mean for their costs and capital expenditure needs.” 

James Hart, Investment Director at Witan Investment Trust, said: “Witan currently has over 5% of its portfolio invested in climate change and renewable energy strategies. Whilst we expect this figure to increase over time, we are fortunate in that we are not compelled to invest at any price or restricted to one sector or style of management. Clean energy stocks are hot property at the moment and the focus on COP26 is likely to accentuate this demand and may help push valuations in sustainable companies to unsustainable levels.

“Meanwhile less clean companies (which may be an essential part of the climate solution) are lowly rated as investors look to avoid being accused of greenwashing. We and our managers therefore take a pragmatic and patient approach to this theme by buying companies when their growth potential is underappreciated, or which may be less obvious beneficiaries of the drive to deliver clean transport, energy efficiency, and renewable power generation, storage and distribution.”

Mark Atkinson, Head of Marketing and Investor Relations at Alliance Trust, said: “The COP21 introduction of the Paris agreement was arguably a climate change turning point. As we still have much to do here and globally to get on the right track to achieving net zero carbon, we hope COP26 will prove the final turning point at which all nations truly commit to tackling climate change. As engaged investors we will look to support businesses with good ESG credentials and purpose. As the UK transitions to net zero carbon by 2050 there will be many opportunities to invest in those committed companies and produce returns for investors.”

Portfolio companies – tackling environmental impact

Matthew Tillett, Portfolio Manager of the Brunner Investment Trust, said: “Electrification is a clear long-term structural trend, offering both technological benefits for industry and consumers, but also significant scope for decarbonisation. Schneider Electric is a portfolio company with an almost singular focus on this goal, at the same time as having a sector-leading approach to its own ESG performance.

“In addition to providing the physical components which enable electrification, Schneider has also invested heavily in software platforms including its investment in UK company Aveva. Integrating these into Schneider’s broader offering allows clients to understand their energy usage but also monitor and respond to situations as they evolve.

“These industrial applications for the Internet of Things, while less glamorous than electric vehicles or driverless cars, offer meaningful productivity gains for companies across a range of sectors. At a company level, Schneider has committed to carbon neutrality in its operations by 2025 and has set science-based targets which it is on track to meet by 2030.” 

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