Investing In Clean Technology: Key Growth Areas To Watch In 2020
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Investing In Clean Technology: Key Growth Areas To Watch In 2020

Investing In Clean Technology: Key Growth Areas To Watch In 2020

  • Amanda O'Toole is a portfolio manager at AXA Investment Managers (AXA IM), where she focuses on the Global Thematics and Clean Economy themes.
  • She believes that there are clear incentives for companies and investors to pay closer attention to cleantech.
  • Her fund's portfolio is bullish on four key areas — learn more about what they are and why she thinks so.

The start of 2020 brings optimism for those participating in the transition to a more environmentally sustainable economy. For example, just last month, Malaysia returned 150 containers of plastic waste – or more than 3,700 metric tons – illegally exported from Europe and North America, forcing us to reflect on how we might approach this waste.

On the consumption side, a recent study found that 62% of Americans had either tried plant-based meat or were willing to do so, while another study concluded that 25% of new UK food launches in 2019 were vegan.

This gradual shift in attitudes toward the consumption of scarce resources continues to evolve. And that gives rise to unique opportunities for businesses operating in the clean technology space.

Evolving Our View of Clean Technology

Perhaps due to recent catastrophic environmental events, such as the Australian wildfires, we are seeing heightened demand for a more sustainable economic and social system.

Governments around the world are responding by gradually tightening regulations on everything from passenger vehicle emissions to effluence discharge monitoring for water quality. From an environmental perspective, this is a big step forward.

From an investment perspective, it means good visibility and earnings growth for companies that can support the improvements mandated. (We think the opportunity is particularly powerful for companies working on improving fuel economy and reducing emissions.)

Consumers are also using the proliferation of information available online to demand more from their brands. Consequently, that’s creating unprecedented growth opportunities for companies that can respond with more sustainable consumer products.

Companies Are Starting to Exemplify This Shift

A notable example of this is the current growth in the demand for plant-based meat. Many fast-food chains report that adding plant-based meat to their menus is bringing in new customers. Not to mention, it’s also often increasing average spend.

The big change here is the willingness of non-vegetarians to reduce their meat consumption and become part of the addressable market for plant-based products.

Similarly, companies that can support brands by mitigating reputational risk associated with their environmental footprints, such as monitoring the practices of suppliers, are enjoying rapid growth.

Corporations are beginning to understand that we have a fixed supply of most resources, while rapid population growth and rising wealth are increasing demand for water, land, energy and rare materials.

Certainly, this will continue to push up the cost of consuming scarce resources, creating a clear economic incentive to adopt more efficient – and often cleaner – technologies. That’s good news for businesses operating in the clean economy, because it limits their dependence on regulation.

What This Shift Means for Corporations and Investors

This new environment presents two potential outcomes for corporations and investors. On one hand, there is secular growth in the addressable markets of clean economy stocks, which creates exciting investment opportunities. On the other hand, corporations that do not adapt face significant risks of disruption and reputational damage.

So, by seeking companies that contribute to a positive environmental impact, it is possible to find leading-edge technologies that offer the best solutions to stringent regulation, the most attractive consumer offering, and the greatest efficiency savings.

As the industry focuses increasingly on this area, data and analysis are improving, making it increasingly possible to identify companies that are on the right side of the risks, positioned to benefit from the opportunities.

AXA IM’s Predictions on the Best Clean Technology Areas

At AXA IM, we invest in companies that lead areas we believe the most significant change will happen. Specifically, we’ve identified those areas to be:

There are currently great opportunities across all these areas. I am particularly enthused by attempts to clean our food supply chain.

All things considered, consumers want fewer chemicals in their food and corporations are finding biological alternatives.

Caveats: The Common Terms Don’t Tell the Full Story

Meanwhile, technology is finding efficiencies all the way along the supply chain. And it’s often driven by digital solutions that are commonplace in other industries.

The industry increasingly caters to “flexitarian” and plant-based diets. Discourse is also creating a more nuanced approach to food. For instance, consumers are recognizing that vegan isn’t necessarily better if it means monocrops and food miles.

In smart energy, the solutions will be broad. Until now, attention has largely focused on renewable energy generation.

In 2019, Bloomberg NEF estimated that investors put $282 billion USD in clean energy globally. Specifically, those investments were led by a 28% year-over-year increase in investment in the US.

Looking forward, much is made of the progress in battery technology. This is critical to the application of renewable power because it allows us to address the issue of intermittent power generation dictated by the weather. However, renewables and batteries represent only part of the opportunity.

Technology that allows for decentralized power, such as residential power, means we can meet the ever-growing demand for energy-using land already occupied by housing, rather than precious agricultural land.

But perhaps most critical of all here is energy efficiency. After all, the ongoing process of urbanization around the world represents an opportunity to create sustainable building stock designed and developed within smart cities.

Companies of the Clean Economy May Reap Structure Growth Benefits

With this urbanization comes a requirement of sophisticated building materials and leading-edge technologies.

As a result, industry specialists who focus on sustainable design and engineering have a big role to play.

Hence, if companies can make this happen, they can help create urban areas that are clean, efficient, connected, storm-hardened, and flood-protected.

At first, market leaders in this area once focused on demand from European cities.

However, now they are looking toward large-scale development opportunities. Those opportunities largely exist in parts of the world where demographic growth, wealth creation, and water scarcity converge.

Particularly, what I love about this strategy is that it incorporates a rich universe of innovative companies finding economically rational solutions to some of the most powerful shifts and significant challenges we face today.

Hence, by being market leaders in their specialist areas, clean technology companies enjoy a structural growth opportunity that has already begun.

It will be exciting to see how these clean technology growth areas come to fruition as the year progresses. What appears certain though is that we’ll see no shortage of reasons within the environment to push corporations in this direction.

Financial Disclosure: AXA Investment Managers is a fund that holds a financial interest in the clean technology space.

Disclaimer: This article and all other content on this site are for informational purposes only; this content is not legal, tax, investment, financial, or other advice. 

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