Feature


There are more sustainable fuels than petrol, but they are still problematic in terms of their


environmental impact.” Rebecca White, Newton Investment Management


are seeing significant news-flow in this space that indicates that there is interest here,” she adds. Backing such companies is part of pension schemes’ remit to protect savers from climate risk. “The green premium they are attracting can be significant and proves there is growing inter- est in this space,” White says. But it is not just about environmental benefits. There are structural motivations, too. “If decarbonisation is something we must achieve over the longer term, then investing in com- panies that are well positioned for this shift will ensure a level of resilience over the next five to 10-plus years,” White says.


Cheese and wine


Hard targets To meet political targets and an expected rise in demand from sustainably-conscience consumers, automakers have set some steep targets. Volkswagen, for example, wants 20% of its sales to be electric vehicles, up from 3% four years ago. White believes there is the capacity in the industry to meet demand. She is seeing companies retrofitting existing plants, while some are constructing purpose-built factories, which are designed for one aim. “The ultimate goal now is that we have the technology to decarbonise vehicles, and scale up facilities to bring costs down, so that electric vehicles become widely accessible and more profitable,” White says. But this is not just about changing the vehicles that auto com- panies are making. Some are changing their structures to posi- tion themselves for broader industry changes. Volkswagen, for example, has launched a mobility services division. “You could criticise that as simply marketing, but per- haps it is more about focusing on changing consumer travel habits and building a model that is resilient to that,” White says.


This changing and growing market is what institutional inves- tors are backing and current figures show that they are doing just that. Electric carmaker Tesla’s market cap hit $1trn (£732bn) for the first time in October and traditional car com- panies have issued green bonds to fund their electric plans. Toyota, for example, has successfully issued six. Then there are the market penetration figures. “In September, EV sales in China were almost 20% of the country’s auto mar- ket, while in Europe it was in the mid-teens,” White says. “We


Electricity is not the only alternative to petrol and diesel. Prince Charles hit the headlines in October when showing off his 50-year-old Aston Martin, which he explained is largely powered by “cheese and wine”. Yet some claim bioethanol made from food stuffs, which can include palm oil, does, although cleaner than burning fossil fuels, damage the environment. Greg Archer, a director of clean transport campaign group T&E, was quoted by The Guardian as saying: “On a large scale, biofuels do more harm than good, driving deforestation and land use change that worsens the climate crisis.” While White acknowledges that it is challenging to produce biomass sustainably, it could still be an alternative in areas where emissions are harder to tackle as batteries will not work, such as air travel. Hydrogen, an alternative to natural gas, needs perfecting. “The technology is not quite there yet and there are many shades of hydrogen…blue, grey, green,” White says. The point is that, as yet there is no perfect alternative to fuel- ling cars, planes and trucks. “There are other options, which are not without their challenges,” White says, “and these chal- lenges could be more significant than batteries from an envi- ronmental perspective. “There are more sustainable fuels than petrol, but they are still problematic in terms of their environ- mental impact,” she adds.


The long game Solving the problems that have featured in this article are essential if we want to decarbonise the global economy. There is no other way. We must overcome these barriers to wider adoption that many consumers and manufacturers are facing. “We have to think about EVs as part of the sustainable solution,” White says. “Like all things we consume, it is not just about get- ting sustainable products, but also tapping sustainable means of consumption. There is a bigger picture to think about.” It is a picture that governments, manufacturers, consumers and investors need to buy into to make this revolution a reality.


Feb 2022 portfolio institutional roundtable: Sustainable investing 29


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