Climate transition: the pioneers will be value creators
Climate transition: the pioneers will be value creators
“The decarbonization of the economy goes through the transformation of business models. For investors, helping companies make this shift will create many opportunities.” Guillaume Lasserre, Director of Asset Management at LBP AM.
Food, heating, or transport—many of us are now very aware of our role, as consumers, in individually contributing to the reduction of our society’s carbon footprint. However, this awareness seems to have little impact on our behavior as consumer-investors. Yet, the leverage effect can be massive. Holding a few tens of thousands of euros in savings represents a number of tons of CO2 emissions equivalent to the average of the French population*. In other words, the potential to reduce one’s individual carbon footprint is just as significant as an investor as it is as a consumer.
But this observation is not enough. Convincing savers to integrate the climate dimension into their savings requires convincing them that companies also have a role to play. In particular, the consumer-client will expect a brand, a car manufacturer, or a real estate developer, for example, to help transform their consumption habits by offering products with a lower carbon footprint. However, they will observe that these same companies, listed on the stock market, are for many of them committed to their transition.
Not just limited to investment in solutions
Investment in climate transition is often perceived exclusively as thematic investment focused on solutions, typically renewable energies, and less as an investment in the transformation of existing businesses. Yet, most business development models are impacted by this phenomenon, by the need to decarbonize their activities. All major sectors are affected: automobiles and energy of course, but also construction, aerospace, agri-food, technology, or finance, for example. And the pioneers will create value!
This shift towards less carbon-intensive production methods is a major source of opportunities and will be illustrated by genuine industrial bets that will create the champions of tomorrow. Already, from Tesla to Netflix, there is no shortage of companies that have managed to ride the waves of climate or digital transitions to impose solid and profitable business models. In Tesla’s wake, which historical players in the automotive industry will have the ability to quickly transform to completely move away from internal combustion engines? Which energy group will choose, like Iberdrola, to divest from fossil fuels? Which steelmaker will manage to use green hydrogen to meet its energy needs? Financial markets, structurally open to all sectors, allow investors to prioritize companies that are ahead of the curve, thus contributing to the decarbonization of the economy and reducing their own carbon footprint through the shares in their portfolio.
Supporting all economic players in their transitions
Many of the products and services that will become engines of development for the most innovative companies in the future have not yet proven themselves today. The financing needs for these highly structuring projects for the companies involved and for the future of our planet are immense. Investors will need to respond, to support all economic players in their transitions, from multinational corporations to startups. All sources of financing will be activated. In addition to bank financing, capital increases on the stock market or with private equity funds, bond issuances, or private debt will be added depending on the company’s profile.
While listed asset markets, stocks, and bonds, are typically the playground for companies of a certain size, investors have the opportunity to support the efforts of SMEs or mid-sized companies (ETIs), which face the same challenges of transforming their production processes. In this universe, the ability to influence the decisions made by management is even greater. The terms of financing granted may depend on the achievement of decarbonization goals, in an impact investment approach.
Within savers’ portfolios, no asset class has a monopoly on decarbonization. All their segments are likely to participate.
This calculation was based on the composition of LBPAM’s portfolio holdings.
Content written by Florent Berthat.
