The Good Thing About Climate Change: Opportunities

Executive Summary

• As climate change has become increasingly problematic for the world, the investment community is starting to pay attention to the investment risks it poses. In this paper, however, we focus on the exciting opportunities in companies involved in combating climate change (i.e., the climate change sector), either through climate change mitigation or helping the world adapt to climate change.
• As costs have fallen for solar, wind, batteries, etc., we are approaching an inflection point where clean energy solutions will be cheaper than conventional alternatives, even in the absence of subsidies. We believe the improving economics for clean energy combined with a growing global awareness of the magnitude of the problem we’re up against will support secular growth in the climate change sector for decades to come.
• We think current growth projections are likely to dramatically understate realized growth as the world continues to mobilize to address climate change and costs continue to fall for clean energy solutions.
• Liquidity, cost, and the ability to diversify are advantages to investing in the climate change sector via the public equity market rather than via private investment.
• We don’t believe that you have to sacrifice returns in order to invest in companies helping the world address climate change; on the contrary, we believe there will be many opportunities to generate strong returns.
• Despite strong growth projections, the climate change sector has generally been trading in line with the broad equity market from a valuation perspective.
• We believe that the climate change sector is likely to be a particularly inefficient sector and that a disciplined value orientation will be key to harvesting strong returns.
• Though there are risks to investing in the climate change sector, the risks we worry about are the same risks investors face in other sectors: getting caught up in hype and stories, paying the wrong price, and investing in industries with poor competitive dynamics.

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