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Global transition to renewable energy offers vast opportunity to SA investors

24 November 2021 Schroders

Schroders targets low carbon shift with Global Energy Transition fund

The urgent need to accelerate the pace of decarbonisation is becoming increasingly clear. The recent COP26 conference once again highlighted that, in order to avoid irreversible repair and achieve climate change targets, a significant transition to a low-carbon world is urgently required.

According to Mark Lacey, Head of Global Resource Equities and Fund Manager of Schroder ISF* Global Energy Transition, this transition will transform the way we produce, distribute and consume energy. “Estimates indicate that $120 trillion of investment into renewable energy is required by 2050 to meet these climate targets, the investment opportunity is huge.”

With the local launch of Schroder ISF* Global Energy Transition, global asset manager – Schroders - aims to harness the global shift towards a low carbon energy system, meet the growing demand for actively-managed exposure to the fast-evolving sector and provide local investors the chance to be part of this energy transition.

Kondi Nkosi, Country Head of Schroders South Africa says that the recently released Schroders Global Investment Survey (GIS) reveals that more than half (56%) of South African retail investors regard sustainable funds attractive due to the wider environmental impact. “When it comes to personal motivation for moving to a more sustainable portfolio, 67% said that the environmental impact of investing sustainably was the most appealing factor, while 55% believe that sustainable investing offers scope for greater returns.

“The survey also shows that 64% of local investors believe that they personally have a responsibility for mitigating climate change through their actions, decisions, purchasing power as a consumer, and lobbying power as a citizen.”

The Section 65 approved fund aims to identify growing opportunities across the entire global energy transition value chain, spanning renewable power production and energy equipment, transmission and distribution, energy storage, smart grid technologies and electric vehicle charging. The strategy does not invest in companies with exposure to nuclear or fossil fuels.

This long-only fund has a strong sustainability focus and a bias towards ‘best-in-class’ companies, as well as those that can demonstrate clear progress towards improvement. It uses a focused thematic approach, managed by Schroders’ well-established commodities and resources investment team, founded in 2005. The team has a high-conviction approach and looks to allocate to 30-60 stocks for the portfolio.

“The global energy transition opportunity is vast. The tremendous investment required to shift away from fossil fuel-powered energy, coupled with growing consumer demand for clean technologies, is creating strong real earnings growth opportunities for companies in this space which, in turn, we hope will benefit investors.

“A significant inflection point has now been reached, which is allowing companies in the sector to become attractive investment opportunities. We therefore believe this could be a beneficial time for our clients to allocate to energy transition. Crucially, our focus will be on the energy system and the associated technologies needed to enable its change.

Andrew Howard, Head of Sustainable Research, Schroders says, “Given the dramatic change in ways we produce and consume energy, investors increasingly recognise that exposure to the energy transition sector is not just an investment opportunity but also a necessity. The energy transition is needed in order to significantly reduce carbon emissions and limit future global temperature rises to less than 2°C, as demonstrated by Schroders’ Climate Progress Dashboard.

“There is now global recognition from governments, consumers and investors that the production of clean energy is essential for the planet. The other recognition is that the scale of the investment required to achieve the transition to more sustainable energy is in the trillions of dollars.

“Renewable energy and electric vehicles are only a part of the change, the way we use electricity, the way it is stored and how it is distributed needs to be updated and this requires significant investment. Schroders is excited to be able to offer South African investors exposure to this fast growing and exciting sector using an active approach.”

Quick Polls

QUESTION

The second draft amendments to Regulation 28 will allow retirement funds to allocate up to 45% of their assets to SA infrastructure, with a further 10% for rest of Africa; but the equity & offshore caps remain unchanged. What are your thoughts on the proposal?

ANSWER

Infrastructure? You mean cash returns with higher risk!?!
Infrastructure cap is way too high
Offshore limit still needs to be raised
Who cares… Reg 28 does not apply to discretionary savings
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