Tom King
Nanuk Asset Management (Nanuk), an industry leader in sustainable investing, expects significantly more aggressive action in the coming decade by governments and corporations to achieve 2030 carbon emission reduction targets and drive significantly faster decarbonisation towards 2040, which will open new opportunities for investors.
This prospect was heightened by a lack of progress at the recent United Nations COP27 meeting in Egypt which failed to deliver more ambitious commitments or action to reduce fossil fuel usage and reduce emissions.
The most recent Global Carbon Budget Report, released during COP27, found world carbon dioxide emissions from burning fossil fuels were on track to rise around 1% this year. The report laid bare the widening gap between the promises governments, companies and investors have made to cut planet-warming emissions in future years, and their actions to date.
Chief Investment Officer of Nanuk Asset Management, Tom King said the implication is that as we move through the current decade, we are going to see a series of significant changes in policy towards more aggressive action to meet the greenhouse gas emission reduction targets many governments and corporations have set for 2030 and to steepen the trajectory of emissions reductions in following decades.
Mr King said there was growing evidence everywhere of climate volatility consistent with the science and this meant things were likely to continue to get worse in coming years, with greater risks of major climate events.
“Over the coming years we will see a series of step changes in policies to achieve a significant reduction in carbon emissions. That’s likely to be favourable for a lot of the areas we invest in,” Mr King said.
Mr King said there had already been a significant increase in government support for sustainable technology in 2022, led by the passing in the U.S. of the Inflation Reduction Act and the Bipartisan Infrastructure Law. While in Australia the new Labor Government’s commitment to a 43% carbon emissions reduction on 2005 levels by 2030 added to the pressure.
He pointed out that the growing use of technologies like renewable energy, electric vehicles and hydrogen power will only help address about a third of overall global carbon emissions although that will still mean significant growth in demand for these products.
However, Mr King said to get to the more aggressive targets most governments are currently aiming for by 2030 will require not only more rapid progress in these areas, but investment in the decarbonisation of many of the currently hard to decarbonise sectors.
“You need to eliminate the use of fossil fuels in buildings, primarily for heating. You need to deal with transport other than passenger electric vehicles, like rail, air and shipping. You need to deal with the big block of emissions coming from industries like cement and steel producers. And you will need to see a greater use of carbon capture and storage by energy companies,” Mr King said.
“As we move though this decade towards 2030, the investment market will start to react to this. It’s only a matter of a few years.”
Mr King predicted there would still be an ongoing boom in the solar industry, potentially a “staggering growth” in the offshore wind industry and further rapid take up of energy storage products and electric vehicles.
Government support for the development of hydrogen projects was also flourishing. “Governments have committed to provide over US$10 billion per year to support the development of green hydrogen projects around the world,” he said.
“The scale of the industry is expected to grow dramatically this year,” he said while noting expectations around pure play hydrogen stocks were currently unrealistic and these stocks had underperformed.
The next big trends though, those which will be far more prominent in 3-5 years’ time, are led by the desire to fully decarbonise the production of electricity and the ongoing “electrification of everything,” Mr King forecast.
Carbon capture and storage, the decarbonisation of air and ocean transport and the adoption of greater recycling and reuse in a more circular economy were areas likely to be seeing a dramatic escalation of investor focus within the next few years, he said.
“Right now we see an increasingly interesting set of opportunities in areas like wind energy equipment makers, grid technologies like metering, component suppliers involved in vehicle electrification, and selected semiconductor companies, sectors that have underperformed this year but for which the medium term outlook has improved. While these areas have become better understood by the market in recent years, we think there is a much broader set of less well understood opportunities that are yet to be widely recognised.”
Nanuk is one of the few Australian asset managers dedicated to investing in industries related to global sustainability and resource efficiency. The Nanuk New World Fund enshrines this investment outlook and is now accessible as an Active Exchange Traded Managed Fund (ETMF) on the ASX, as well as via direct application and IDPS platforms. The ASX code is NNUK. According to Morningstar’s Q1 2022 Sustainable Investing Landscape for Australian investors Nanuk was one of a few fund houses to dominate first-quarter flows.