Hamish Chamberlayne, Head of Global Sustainable Equities, discusses his expectations for sustainable equities in 2021.

Key takeaways:

  • The pandemic has accelerated investment into digitalisation, which we consider to be a key enabler of sustainability.
  • We expect support for sustainable development to gain momentum as countries embrace the need to be low carbon and as Joe Biden takes his seat in the White House.
  • Investment into electric vehicles is expected to surge in 2021 as innovators ‘race’ to the top.

2020 has been a turbulent and unpredictable year and yet we have seen progress made in the name of sustainability. Despite the obvious and devastating consequences of COVID-19, the pandemic has accelerated investment into digitalisation and we consider this to be a key enabler of sustainability. By nature, digitalisation results in a lesser physical impact on the planet. Virtualisation of otherwise physical activities or products – such as travelling and using tangible physical products – is just one example. Digitalisation is also key to advancing social goals around knowledge sharing and economic empowerment and development. Amid the news about potential vaccines and a ‘return to normality’, it is easy to dismiss the lasting impact that COVID-19 may have on the way we live and work. We do believe there will be a permanent shift, however. From telemedicine to work-from-home setups, digitalisation has provided solutions to several of the problems faced in 2020 and we expect many of these societal changes to endure into 2021 and beyond.

Soon, there will likely be greater support for sustainable development in the US with Joe Biden’s election victory. It is expected that the US will rejoin the Paris climate agreement and echo similar commitments outlined in the European Union (EU)’s green deal. Biden has already proposed ambitious plans to make US electricity production carbon-free by 2035 and to reach net-zero emissions nationally by 2050. It is important to note, however, that even under President Donald Trump the US made huge steps in advancing renewable energy. During his four-year term, US renewable consumption beat coal consumption for the first time in over 130 years1 – see chart 1. If such progress can made during an administration that did not appreciate the need for sustainable development, we are excited to see how much progress can be made under a supportive government.

Chart 1: US coal consumption vs renewable consumption

Chart 1 - coal vs renewables

Source: US Energy Information Administration (EIA), monthly energy review data, as at 24 November 2020. Note: British thermal units (Btu) measure the heat content of energy sources. One Btu is defined as the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

As countries embrace the need to be low carbon, the next decade will be characterised by the mass adoption of electric vehicles (EVs) – see chart 2. In the UK, plans to end the sale of petrol and diesel cars and vans have been brought forward to 2030, a decade earlier than initially anticipated. Elsewhere, Norway, Canada and Germany have targeted 100% passenger EV sales by 2025, 2040 and 2050 respectively2. In Europe alone, €60 billion was invested in electric vehicle and battery production in 2019, 19 times more than the year prior3. Meanwhile, China has also jumped on board in order to meet its ambitious new low carbon development strategy, targeting 25% EV car sales by 2025. 2

There is clearly high consumer interest in electric vehicles. In September, an astonishing three million people tuned in to watch Tesla’s Battery Day presentation where it unveiled its technology road map and investment plans for the next decade. Tesla has ambitions to increase battery production by a factor of 100 and it has identified innovations to improve both battery longevity and vehicle range. Perhaps most importantly we expect Tesla’s aggressive plans to catalyse a step up in the pace of investment across the entire automotive sector. In fact, some companies have already begun making moves. Volkswagen recently announced a €73 billion investment into electrification, hybrid powertrains and digital technology over the next five years. What is more, nearly half of that investment has been set aside for battery electric vehicles in a “race with Tesla”, according to Volkswagen CEO Herbert Diess.

Chart 2: Expected adoption of passenger electric vehicles globally

Chart 2 - expected EV sales

Source: BloombergNEF, Electric Vehicle Outlook 2020

Based on political commitments towards a sustainable economy and the rapid pace of innovation, we see a smart, connected, digital and green future. We see a decade of clean energy and electrification, with breakthroughs in battery technology and widespread adoption of electric vehicles. We see a decade of digitalisation and connectivity which will enable new ways of organising our economies and promote greater efficiency and circularity across multiple industries.

With interest rates low and the economy weak, we believe it is better to invest in companies with the potential to grow and compound over time and that the most attractive opportunities will be found in companies exposed to the two secular investment trends of green and digitalisation. These two trends cut across our ten sustainable development investment themes – which include Knowledge and Technology, Efficiency and Clean Energy – and help to inform our idea generation. As such, our investment approach in 2021 will not change. By focusing on our sustainable development investment themes, we believe we can find resilient companies exposed to secular growth opportunities.

 

Footnotes

1US Energy Information Administration, 28 May 2020

2The International Council on Clean Transportation, Update on the global transition to electric vehicles through 2019, July 2020

3Transport and Environment.org press release, 25 May 2020