Viewing the influence of global warming doesn’t seem like the most obvious tourist attraction. Yet in July, Chinese sightseers flocked to a giant thermometer located in the Flaming Mountains in Xinjiang Province, which showed record surface temperatures of 80 degrees Celsius.https://www.b92.net/eng/news/world.php?yyyy=2023&mm=07&dd=19&nav_id=116378 Record high temperatures have been recorded in many other parts of Asia this year, including India (49.2°C), Japan (38°C),https://www.bbc.com/news/world-asia-65900044 and Thailand (45°C). Other dramatic weather events are also claiming lives across a region that is now at the centre of the climate crisis, according to the World Economic Forum (WEF).https://www.aljazeera.com/news/2023/7/8/what-makes-south-asia-so-vulnerable-to-climate-change & https://newsinfo.inquirer.net/1673630/climate-change-to-cause-stronger-typhoon-winds-in-ph-wind-dynamics-expert
Record high temperatures in Asia
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Source: BBC, Climate change: The record summer that scorched Asia, 7 August 20232
Indeed, the WEF argues that the battle for net zero will be won or lost here, since Asia is both the “most vital engine” of global economic expansion and the part of the world “most vulnerable to the impacts of unchecked emissions growth.”https://www.weforum.org/agenda/2023/04/how-corporate-asia-sits-at-the-centre-of-the-climate-crisis-but-also-its-solution/
Faced with mounting public pressure, Asian authorities are increasingly active. China, for example, is aiming to hit peak emissions before 2030 and reach net zero by 2060https://www.bbc.com/news/science-environment-54256826, while India aims to be carbon neutral by 2070. Other Asian countries, including Singapore, Malaysia and Vietnam, are focusing on reaching that goal by 2050.https://theedgemalaysia.com/article/12mp-malaysia-committed-becoming-carbonneutral-nation-2050-says-pmhttps://climateactiontracker.org/countries/ https://www.pictet.com/ch/en/responsible-vision/climate-action-planBusinesses across the region, including Pictet Asset Management , are striving to play a part by making their own commitments to sustainability.
Net zero commitments in Asia
Sources: The Edge Malaysia, Climate Action Tracker, 20236,7
Consumers and investors also have a role to play. Indeed, every element of society can contribute to the effort to mitigate the impact of climate change, one of the megatrends that Pictet Asset Management believes can function as a catalyst for long-term growth and give rise to new business opportunities.
A framework constructed in collaboration with experts at the Copenhagen Institute for Future Studies helps to define and monitor these megatrends. Part of the process involves gauging the extent to which a particular megatrend is a long-term source of growth for each of its thematic equity strategies.
Pictet Megatrend Framework
Source: Pictet Asset Management, September 2023
Sustainable investing opportunities
These megatrends provide opportunities for investors. They can help address climate change by supporting companies that seek to alleviate the problem and gain exposure to emerging technologies – from renewables to AI and more – as part of the green economy that will become increasingly influential in the coming decades. This should create the potential to receive a positive return on their investment. Yi Du, Senior Investment Manager for thematic equities at Pictet Asset Management, says, “We strongly believe that within this decade, we are observing a massive energy transition and technological advancement in environmentally related technologies.”
We have observed that renewable power is becoming more appealing than the traditional fossil fuels, and it’s happening because of technological advancements.
Pictet Asset Management aims to capture opportunities across the whole of the energy transition by focusing on clean energy. Investing in listed renewable energy companies is an obvious route. But they are in increasingly short supply. So, investors seeking green energy opportunities need to extend their reach within the energy transition ecosystem.
Advances in technology underpin the energy transition
Enabling technologies such as battery storage and power-management semiconductors are needed for the transition to a low-carbon economy. Electric networks, smart grids and car-charging infrastructure are also necessary, while energy efficiency is crucial for reducing the carbon footprint of energy-heavy industries such as transport, construction and manufacturing.
The operating outlook for environmental solution providers is also improving, reflecting growing support from governments and consumers. This includes subsidies and tax credits for environmental protection and solutions.
At the same time, the penalties for those companies whose activities are harmful to the environment are becoming increasingly onerous, and such companies will come under growing scrutiny.
According to Du, environmental solutions companies will benefit from the deployment of cutting-edge technologies that can boost efficiency, as well as a favourable operating environment that should underpin relatively high and sustainable growth.
Not only are these companies helping solve some of the most pressing environmental problems, but we also screen stocks to ensure the businesses meet our Environmental, Social and Governance (ESG) goals. Du explains:
We combine ESG data from local and global providers and make on-site visits to ensure we fully understand the nature of a business and are convinced of its ESG credentials.
Building a framework for environmental and climate change investments
Our environmental strategies use the Planetary Boundaries framework, a model that influences how we analyse and invest in climate change solutions. Developed by a team of leading scientists at the Stockholm Resilience Centre, the model identifies the nine most critical environmental dimensions – including carbon emissions (climate change), fresh water, land use and biodiversity – that are essential to maintain the stable biosphere required for human development and prosperity. It then demarcates the “safe operating space” within which human activities should take place and allows us to measure the environmental impact of activities in a scientific way.
Understanding the strategy
Tackling climate change in Asia is key to addressing the threat posed by rising temperatures and increasingly unpredictable climate patterns globally. Investors can help finance the technological transitions required to alleviate the problem, while at the same time capturing healthy returns. They need to tread warily, however. There is no set definition of what constitutes an environmental solutions business, according to Du. Consequently, we examine the purity of a company – a proprietary indicator of how specialised a company’s activities are to a specific theme - as well as the investment universe that stocks are being chosen from.
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