Ganesh Suntharam

The strengthening of China’s commitment to carbon emission targets, coupled with the return of the United States to the Paris Climate Agreement, sets the stage for a globally coordinated move away from fossil fuels and towards a greener economy, according to Redpoint Investment Management’s chief investment officer, Ganesh Suntharam.

Mr Suntharam believes this energy transition will require investment of additional capital and is set to dominate a host of economic sectors over the coming years, presenting significant potential for above average risk-adjusted investment returns. The transition will likely create opportunities within Global Listed Infrastructure assets, with an increasing number of established, renewable energy infrastructure companies listed on global exchanges.

“These renewable infrastructure assets have a diversified mix of revenue streams from multiple renewable sources and geographies, and are well ahead of many traditional utility companies in terms of the transition to clean energy.

“Many of these renewable energy companies have also established a first-mover advantage and in doing so, have built up significant technical expertise and experience in owning and operating renewable energy generation assets,” he said.

Mr Suntharam said Europe has led the way in the sector and cites Danish company Orsted as being a good example of a leading technological capability in offshore wind farming. However, he said for investors looking to obtain increased exposure to listed renewable infrastructure companies, typical benchmarks will not usually meet their needs.

“Most infrastructure benchmarks typically contain little exposure to renewable energy companies outside of the traditional utility companies, which themselves are still dominated by fossil fuels.

“US-headquartered NextEra Energy is the only company with a majority of its business exposure from clean energy that features in the FTSE Core Developed Infrastructure index flagged in the Your Future Your Super legislation,” he said.

The combination of a widespread structural shift in energy production and the relatively limited exposure of traditional benchmarks to this thematic is also driving a more research-based approach to stock selection, according to Mr Suntharam.

“The need to search beyond the traditional indexes to identify opportunities within global listed infrastructure assets is becoming more apparent.

“From a portfolio perspective, we know renewable energy companies bring diversification benefits and potential for cashflow and dividend growth as they become more mature, so the ability to find these investments using a systematic, research-driven approach is more important than ever,” he said.

“Beyond the investment merits of these stocks, the Environmental, Social and Governance (ESG) attributes are also now more pronounced. Recent global research highlighted that companies involved solely in the clean energy transition are at the forefront of ESG investing, with these companies set to benefit from favourable fund flows and changing ownership levels as investors look to add ESG influence beyond negative screening.

“Developments in the renewable and clean energy sector in recent years has seen the sector transform from a riskier and more experimental investment prospect to one which is more securely established, and ESG investing has been central to this transformation.

“The sector now presents investors with an opportunity to invest in more mature assets with stable yield and growth characteristics similar to those of other infrastructure sectors. Expectations for escalating multi-decade growth and development in the sector is expected to underpin the investment case for renewables as a valuable, long-term investment,” said Mr Suntharam.

Redpoint’s Global Listed Infrastructure Strategy is designed to capture the key characteristics of infrastructure in a diversified portfolio. It aims to provide lower volatility than global equities, along with a focus on quality companies and long-term sustainable income growth. It has outperformed the FTSE Core Developed 50/50 Benchmark since its inception year of 2012.

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