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Climate: invest in the solution

Tom Stevenson

Tom Stevenson - Investment Director

If you are unaware that the world faces a climate change crisis then, I’m sorry to say, you have not been paying attention. Understanding the problem is not the principal challenge, however - doing something about it is.   


I write this from a shameful place that most people reading this will understand only too well. Last weekend, my wife and I hopped on a plane to visit our son in Helsinki. On the way home, I started reading a book he had given me - The Uninhabitable Earth by David Wallace-Wells is an apocalyptic vision of a world devastated by global heating. I was not unaware of the irony.

There is a temptation to think that climate change deniers are the villains of the piece here, but the bigger problem is actually people like me - the well-meaning individuals, and governments and companies too, that acknowledge the scale of the problem but still act as if it’s not happening.

The first step in solving any problem, of course, is to recognise it as such. And today the International Energy Agency provided us with yet more evidence that we need to act now. According to the IEA’s latest World Energy Outlook, published today, carbon emissions are set to keep rising over the next 20 years, even if governments meet all their current environmental targets. 

The kind of rapid reduction in emissions required to keep global warming below the 2 degrees increase generally seen as a minimum to prevent disaster will, therefore, require significantly more ambitious policies to promote energy efficiency and clean energy technologies than are currently being planned.

The executive director of the IEA, Fatih Birol, concludes that ‘the world needs a grand coalition encompassing governments, companies, investors and everyone who is committed to tackling the climate challenge. In the absence of this, the chances of reaching climate goals will be very slim.’

The situation laid out in the IEA’s new report is scary. Under a business as usual scenario, carbon emissions in 2040 would exceed 40 gigatonnes a year. That compares with 23 gigatonnes in 2000, which confirms that the problem we face is not a legacy of our dirty industrial past but a current issue. Did you know, for example, that we are burning 80% more coal than we were at the turn of the century, just 19 years ago.

According to the IEA, the share of energy provided by fossil fuels was 80% in 2000, is 81% today and will under the current policies scenario be 78% in 2040. In other words, for all the talk of a climate emergency, we are doing pretty much nothing about it.

This is too big an issue for one short article, of course, and it is too easy to fall into a slough of despond, so I will stop the alarming numbers there and turn instead to how, as investors, we can start to become part of the solution and not the problem.

At its simplest, the climate crisis is a product of too much energy demand being satisfied by the wrong kinds of dirty energy production. So, a good starting point for finding a solution is to invest in the energy efficiency and clean energy technologies that the IEA has highlighted as the right targets for governments’ more ambitious policies.

Finding funds that invest in these kinds of companies is not as simple as it looks. In some cases, clean energy is just one part of a broader environmental remit. A good example of this is one of the best-established investment trusts in this area, the Impax Environmental Markets Trust. It backs companies focused on technology-based systems, products and services in alternative energy, energy efficiency, water treatment and pollution control. As you can see from this list, it is already moving into broader environmental concerns but it is a good start if clean energy is your principal concern.

Another energy-focused fund available on our platform is the BlackRock Global Funds Sustainable Energy Fund, which aims to invest at least 70% of its assets in so-called new energy companies. These are businesses focused on renewable energy technology, alternative fuels, energy efficiency and related infrastructure. It explicitly avoids investments in coal and in oil and gas exploration and production.

It’s worth noting, finally, that doing the right thing need not be incompatible with a decent investment return. The Impax investment trust, for example, has seen its share price more than double in the past five years, although needless to say the past is not a guide to its future performance. 

Our new Invest for Life series of videos shows how different people are tackling the financial challenges they face in life. In this episode we look at sustainability and making ethical choices.

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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