Less than a quarter of the necessary investment in decarbonisation needed to meet climate change targets by 2050 is being made in what should grow to a $100trn industry in the next three decades, according to a panel of Investec Asset Management experts. 
Investec’s Deidre Cooper (pictured), co-manager of the Investec Global Environment Strategy, said decarbonisation will easily become a $100trn area over the next thirty years, making it one of the biggest and fastest growing areas to invest in.
“Thinking about the $100trn remember that is over 30 years,” said Cooper. “So when you say ‘oh that’s all the money that’s in all the pension funds’ actually it’s about $3trn a year.
“All they need to do is to start gradually allocating some portion of the returns which gets you to this point. This is an imminently solvable problem. We have the capabilities to mobilise the capital, to solve this problem.”
Aside from the available capital Cooper added that a key element to making the goal of decarbonisation worth $100trn is technology and more specifically the fact that increased investment will not raise systemic costs.
This can be seen in the rise of electric vehicles, she explained how.
Indeed, the next generation of electric cars have become more efficient than the fossil fuel-powered engines making them cheaper to drive as well as to produce and operate than the traditional internal combustion engine models.
As such this is an example of decarbonisation where profit will just increase rather than push production costs.
As an advisory board member of the Shell Foundation’s Energy Company of the Future Project alongside co-managing the Investec Global Environment Strategy Cooper understands the importance of addressing investors increasing focus on the risks of climate change.
She said while some major world leaders – such as US president Donald Trump – show no interest in the decarbonisation opportunity, economic markets are.
“Fun fact in June it was the first month ever in history where the US generated more electricity from renewable energy than from coal,” she said.
“And that’s completely in spite of an administration who have spent a lot of time talking about how they’re going to save the coal industry.”
Even after pulling the US out of the Paris Agreement on climate change and releasing the ‘America First Energy Plan’, focused on fossil fuel usage for the nation’s power source in the place of renewables, Trump’s agenda has not paid off.
According to Cooper it is largely due to the underlying economics of decarbonisation, which requires more investment now.
But it won’t be a trade-off with higher system costs and what will push it to be a major growing market.
“What we do in our environmental fund is focus on decarbonisation,” she explained. “The reason we’re focused on decarbonisation is because we think it’s an area where both impact and investment returns are aligned.
“And for us that’s a really important factor because from an impact perspective you need to have that alignment. And the response we think it’s interesting from an investment return perspective is pretty easy. It’s $100trn over thirty years: it’s an enormous profit.”
To screen for those players who will be a part of their decarbonisation opportunity the Investec Global Environment Strategy team screen for global equities and companies that are exposed to the energy transition from depreciated and new fossil to more renewable sources.
“We think that those companies have a fantastic opportunity to outperform because they benefit from this fantastic tailwind of global opportunity as we start to decarbonise, either because of regulation as we’re seeing in Europe or simply because of cost,” said Cooper.
“As we saw in the US sometimes it’s because of regulations and sometimes in spite of it. And on the impact side we certainly argue that it’s hard to think of anything more impactful than climate change or decarbonisation.”
One fund into which Investec feeds their integration of sustainability considerations into the investment process is the Investec UK Sustainable Equity fund.
Although Cooper talks on a global scale the principles of integration remain crucial in all the funds, according to the manager, Matt Evans.
Performance of fund vs sector & benchmark since launch
Source: FE Analytics
Launched at the end of last year his £18.8m fund operates on the idea of a “necessary fundamental transformation” which will link environment, society and business in an interconnected way in investment, rather than keeping them as three standalone pillars”.
Since launch the fund has made a total return of 18.60 per cent compared with a gain of 13.01 per cent for the average IA UK All Companies peer. The fund has an ongoing charges figure (OCF) of 0.79 per cent.