From ‘smart factories’ to solar-to-hydrogen technology, companies pioneering sustainability are a high-growth investment opportunity, writes Kyle Hulett, Head of Investments for Sygnia Asset Management.
Once viewed as a handbrake to economic growth, sustainability has become a high-growth economic opportunity for innovative companies and the investors supporting them.
This turnaround is partly driven by the emergence of new markets, for example the demand for home-based solar energy solutions as fossil fuel grids fail and/or natural gas lines dry up due to geo-political events such as the Russia/Ukraine conflict.
Cost optimisation is also a big driver. Manufacturers that have embraced new technologies such as 3D printing and machine learning are realising significant reductions in energy consumption and waste. Good for their bottom lines; good for the planet.
Times of crisis can also accelerate innovation, and the current Russia-Ukraine war is a testament of this. With fuel prices hitting record highs, governments are being forced to invest in alternatives. US President Joe Biden’s Inflation Reduction Act, which was signed into law last month, has allocated US$369 billion in spending on energy and climate change. At the same time, European leaders are fast-tracking alternative energy plans to avert a looming gas shortage crisis that threatens to leave many European countries in the cold this winter.
Sustainability At Hyper-Speed
While Sygnia has long been focused on sustainable investment strategies, the above factors have culminated to create an environment whereby there is an urgent need to accelerate and hyper-focus sustainable investment products.
We’ve moved quickly to capture this opportunity by launching the Sygnia Itrix Sustainable Economy ETF fund, which invests in 300 industrial and energy stocks that help fight climate change.
Our new ETF is a passively managed index tracking fund, which aims to replicate the price and yield performance of the S&P Kensho Sustainable Technologies Index. The Fund’s investments are divided into four parts: sustainable infrastructure; sustainable agriculture; sustainable manufacturing; sustainable society.
Sustainable Infrastructure
Right now solar-to-hydrogen technology is seen as one of the most exciting growth areas in the clean energy space, with the potential to address a key challenge with renewables: the large-scale storage of electricity from variable sources such as wind and solar.
Simply put, it uses solar energy to power an electrolyser, which separates water into hydrogen and oxygen. A fuel cell then converts the hydrogen back into electricity via an electrochemical process that is efficient and emits a single by-product: water!
The fund invests in two American companies at the forefront of hydrogen fuel cell technology, Plug Power and FuelCell Energy. Having already landed some big-gun customers such as Walmart and Amazon, we’re confident these firms have considerable growth potential as the world moves to a zero-carbon economy.
Sustainable Agriculture
The truth about that juicy fillet you’re enjoying may be hard to swallow. Feeding the planet currently generates around 11% of all greenhouse gas emissions, but with the global population expanding like the average American’s waistline this figure is only going to increase.
That’s why our Sygnia Itrix Sustainable Economy ETF invests in companies that are finding innovative solutions to boost food production while cutting the environmental impact of farming. Companies like Beyond Meat, which produces plant-based meat substitutes that are as yummy as the real thing but generate up to 90% fewer greenhouse gases than farming livestock. And Nutrien, a Canadian firm that is using technologies such as drones, satellite imagery and remote sensors to increase agricultural output to feed the world’s growing population, while using fewer chemicals and reducing CO2 emissions.
Sustainable Manufacturing
The First Industrial Revolution gave us the steam engine, mechanised production… and lots of smoke. The Second and Third Industrial Revolutions brought further efficiency gains thanks to mass production and automation, and lots more smoke.
Now we have entered the Fourth Industrial Revolution, where so-called digital manufacturing – or Industry 4.0 – promises a reduction in the environmental harm. The latest “smart factories” like those at Boeing and Raytheon Technologies – both part of our new Itrix Sustainable Economy ETF – use technologies such as AI, machine learning and 3D printing to increase output while reducing energy usage and pollution.
Sustainable Society
For many, the pandemic was the first time they used platforms like Zoom or Google Meet. For others it meant an end to the dreaded red-eye flights to make that 9am meeting in Jo’burg or Cape Town. For the planet it meant a significant reduction in air pollution. While no one on Earth is happy about the Covid-19 pandemic, it did force our global society onto a more sustainable path by enabling people to connect online rather than jumping in a car or plane.
The Metaverse takes this to the next level, offering a virtual reality world where people can live – and work – in parallel digital realms as avatars. Sound like science fiction? Think again. Bloomberg projects the Metaverse market may reach US$783 billion in 2024. Big brands like Nike are teaming up with game developers like Activision Blizzard to develop branding opportunities. Warner is buying digital land to host concerts. And NVIDIA, which manufactures VR headsets, is expected to surpass 34 million units by 2024.
It’s clear that global economies are moving towards a more sustainable future. Any forward thinking investor will want to stay on top of the investment trends driving this transition into sustainability. Sygnia has made this easy with the launch of our new Sygnia Itrix Sustainable Economy ETF.