Make more from less

Rising investment in clean energy projects

The severity of world climate change has already led to total global investment in clean energy projects of $243 billion in 2010, a rise of 30% from 2009. However, much more is required over the coming decades. According to Mercer’s Climate Change Scenarios report (2011), cumulative investment in efficiency improvements and the low-carbon energy market could be worth as much as $5 trillion by 2030. This means that companies exposed to low-carbon energy, resource efficiency or waste and water management all stand to benefit from increased investment. In fact, companies are already making serious money in this industry, with climate change related revenues more than tripling between 2004 and 2009 according to an HSBC report.*

A global megatrend

Underlying this global megatrend are the twin factors of population growth and a finite supply of natural resources. More people in the world means greater demand for energy and water, particularly as a developing middle class in emerging economies is demanding higher living standards. This is having a major environmental impact and depleting finite natural resources, which in turn is driving improvements in efficient usage – including waste recycling – as well as sourcing energy from alternative technologies.

An opportunity for investors

There are a growing number of funds giving investors access to this story – from broad, actively managed funds to specialist funds in water or alternative energy sectors.

Certainly the story is not just about ‘alternative technologies’ like solar and wind-generated power or any other singular industry, it’s much bigger than that. To capture the theme’s full potential, investors need a fund that is diversified across a broad array of sectors, and that concentrates on companies within those sectors whose success is driven primarily by their delivery of products and services that aid the transition to a low-carbon world.

Only ‘pure-play’ companies need apply

We believe that the Legal & General Global Environmental Enterprises Fund does just that. We spent a lot of time and money trying to identify areas of growth and we have found it in three key sectors which are integral to the transition to a lower carbon economy:

• Energy efficiency
• Low carbon energy production
• Water, waste management and pollution control.

Our fund can offer investors a great diversifier into their portfolios, as well as aiming to provide high growth in what is set to be a low growth environment.

The fund is based on the constituents of the Osmosis Climate Solutions Index, made up of companies generating more than 50% of their revenues from the transition to a low-carbon economy. We have chosen the Osmosis index for its innovative stock selection process that provides broad exposure to companies engaged in industries helping to find more efficient solutions to environmental issues globally. We are looking for ‘pure-play’ companies to ensure that the portfolio only includes companies whose share price is determined principally by their low-carbon products and services.

Our passive investment fund aims to give investors a balanced exposure to the three sectors and the various sub-sectors through a broad portfolio of companies involved in all aspects of this low-carbon transition.

We believe the greatest investment gains will come from companies that understand the global shift to a low-carbon economy and are providing scalable, viable products and services that make the transition an efficient one.

David Stevenson is Product Specialist at Legal & General Investments.

* HSBC Global Climate Change report September 2010.

You can find out more information at www.landginvestments.com/bright