By Mark Thompson is a fund manager at Friends Ivory & Sime Environmental technology is one of th...
By Mark Thompson is a fund manager at Friends Ivory & Sime
Environmental technology is one of the next decade's high growth areas, but at first sight seems an extraordinary area for investment ' surely everyone knows that green investments mean sacrificing returns and as for technology, that's even worse.
A more thoughtful investor may step back and consider the many changes pointing to a new perspective on environmental matters. In isolation, these often appear insignificant, but taken together they demonstrate a global shift in our approach to the environment.
Although each country may have a different focus, the fundamental trend is clear. Everyone knows of climate change: most countries have targets for renewable energy; the first fuel cell cars arrive in showrooms this year; the pressure to recycle is increasing and we all expect clean water. Only when you go back ten years and consider the novelty of catalytic converters and unleaded petrol, does the magnitude of change become apparent.
What was once the domain of environmental radicals ' such as the clean-up of contaminated land or sorting rubbish for recycling ' most of us now accept without thinking. At this point, the astute investor realises that such elemental changes provide enormous opportunities for innovative and profitable companies.
Until technology, media and telecoms corrupted the definition in the late 1990s, technology was synonymous with competitive advantage ' doing it better, faster or cheaper. Apply this definition to environmental technology and we discover that wind power was the UK's cheapest form of power last year, solar cells form one of the most reliable and cost-effective methods of providing off-grid power, chemical free water treatment methods are now cheaper than existing methods and the treatment of contaminated soil following a landfill ban has created outstanding cash generative businesses.
A one-dimensional view of environmental technology may question its viability when the US apparently stands aside from Kyoto and many markets evidently depend on government support. Broader consideration shows that environmental technology has many origins.
For example, the US has one of the most successful emission trading markets in the world and Texas saw 900 megawatts of new wind energy capacity built last year ' twice that achieved by the UK over the previous 10 years. Many countries may not clothe their environmental technology needs in green, but looking globally brings opportunities for world-beating companies.
Contrary to popular belief, the environmental technology sector is already a reasonable size and growing rapidly. Our database has over 325 listed environmental technology companies, with a combined market cap of over £100bn, plus twenty companies ready to IPO and a further 100 ready in the next three years.
Environmental technology is a specialised field that is under researched and poorly understood. As such, it provides many openings for a knowledgeable investor without sacrificing returns.
Many growth drivers.
Requirement to raise standards.
Public won't accept unsustainable practices.
Few funds run by credible managers.
VOlatile sector - not a short-term investment.
Hard to judge the opportunity.
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Spent 56 years at Schroders