Despite ever-rising carbon dioxide emissions, sinking solar stocks, and perceived falls in government support for renewables, the low-carbon investment theme is “alive and well”, according to analysts at Citi.
In a note accompanying an update of its ‘Climate Change Universe’, published today, the US financial services giant has identified “actionable investment” opportunities to tap into the investment theme, which it says will see an estimated $12 trillion of investment over the next two decades.
“With so many sectors clearly still impacted by the theme, and so much new capital being/going to be invested, we believe that the question of whether this is still a real investment theme is closed,” the report says.
The report concedes that the clean-tech sector has performed badly recently, with the combined market capitalisation of the Citi Climate Change Universe – which now contains 169 companies – down 65% from its peak in late 2007, while the performance of the clean energy sector has been even worse, falling 84%. However, the Citi analysts remain convinced of its potential for several reasons.
First, renewables now account for majority of investment in new electricity generation technologies in Europe. Also, contrary to perception, subsidy support for renewables is increasing, and is forecast by the International Energy Agency to grow from $75 billion currently to about $250 billion by 2035. Furthermore, the number of countries with renewable energy targets or carbon pricing systems is growing rather than shrinking.
To help investors gain exposure to this megatrend, Citigroup has identified 20 stocks based upon exposure to specific regional or industry climate policy and thematic drivers, corporate positioning and strategy, valuation, and liquidity (requiring more than €1 billion of free float – see below).
“In this way,” the report states, “we believe that investors can gain global exposure to this megatrend without having to resort to investing in highly liquid, high-beta stocks.”