The climate investment landscape is often discussed in aspirational terms: promising technologies, pilot projects and potential breakthroughs. Today’s reality, however, sees a transition that is increasingly about capital deployment now, rather than ambition or innovation for the future.
The Storebrand Plus funds, which allocate 12-15% of portfolio assets to climate solutions, require qualifying companies to derive over 50% of revenues from products and services that directly address the challenge of reaching net zero. This paper examines the results of that filter when applied to two different investment universes: developed markets (Storebrand Global Plus) and developing ones (Storebrand Emerging Markets Plus).
Despite the same revenue threshold, whitelist methodology and analytical framework, we find that the company profiles within the two funds’ climate solutions sub-portfolios are strikingly different. Depending on where they are domiciled, the shared climate challenge is being monetised through different business models at different points in the transition value chain.
In emerging markets, particularly China, the solutions sleeve is dominated by companies already manufacturing and delivering upstream climate hardware at industrial scale: batteries, solar panels, grid equipment and rolling stock. In developed markets, the sleeve tilts towards services, efficiency, recycling and grid infrastructure – activities that are essential, but often downstream or further removed from the physical production of climate technology.
As well as exploring what the Plus funds’ holdings demonstrate about how climate solutions are distributed across the global economy, the paper explores what this means for investors seeking genuine and diversified exposure to the energy transition. There are also important investment implications for differentials in valuations, earnings growth, share price performance and risk factors across the two markets, as well as some key areas of common ground. For asset owners and allocators, we find that DM and EM climate solutions are complementary, rather than substitutes, and exposure to both gives more complete transition coverage than either alone.
The paper also examines the risk factors facing companies and their investors in both emerging and developed markets as well as the outlook and the structural trends that are likely to shape the evolution of both markets in the coming years.
Read the white paper here:
Climate Solutions: Same same, but different