Save the climate, save your pocket
#Market Strategy — 13.06.2022

Save the climate, save your pocket

Update of our investment themes - May 2022

THEME 3

Climat

Sky-high raw materials and energy prices have spurred a renewed focus on circular economy models. In just four months, commodity prices (energy, metals, foodstuffs) have soared overall by 33% in euro terms. In recent years, the developed world has been used to ever-cheaper commodity prices, but this is over.

From now on, higher costs and our limited budgets will prevent us from being so wasteful.

Circular economy leaders post strong recovery: the Q1 2022 stock market correction was particularly harsh on growth-oriented stocks and sectors. But now we see an attractive entry point for investment products focused on the themes of the circular economy, energy efficiency and renewable energy.

OUR RECOMMENDATIONS

A cross-asset theme: equities, bonds, infrastructure, real estate and commodities

- Circular Economy leaders: including a focus on better and more modular design, making products more easily repairable, longer-lasting and requiring fewer raw materials to produce, with a smaller carbon footprint. This covers leading manufacturers and technology companies from a number of manufacturing industries, also major operators in the sharing economy and in leasing.

- Energy Efficiency: it is far easier to save energy rather than to generate it, via energy conservation solutions including insulation, smart glass, geothermal heat pumps, automatic light sensors and power monitoring systems.

- Smart Grid Infrastructure and Renewable Energy Storage, including battery metals, which are necessary raw materials for these storage systems.

- Renewable/Clean Energy, given the need to generate more electricity via non-fossil fuel sources to ensure greater energy security and self-sufficiency.

 

KEY RISKS

- An overriding political imperative to lower prices for consumers and businesses could lead to a delay in the investments and policies required to drive higher investment in the circular economy in the near term.

- The enabling of new technologies to achieve optimal use of natural resources including energy could supersede current circular economy technologies and business models in the reuse, repair and recycling of goods and services.

 

High inflation boosts the Circular Economy

High inflation is raising the cost of living, squeezing the average household budget and curtailing discretionary spending for most consumers. This is an unexpected economic boost for the circular economy, as it obliges households to rethink their spending on goods and services. In this environment, consumers focus on value for money: a) selling products they no longer use second-hand to raise funds, b) repairing their possessions rather than replacing them, and also c) buying second-hand goods or renting/leasing goods instead of buying them, in order to save money.

Out with the Linear, in with the Circular

We need to move away from the extract-make-use-dispose product cycle, and increasingly move towards a circular model - a new model inspired by nature. There is no waste in nature. Materials are not thrown away or lost, but instead remain in “closed loops”. Products are designed and manufactured in such a way that their lives are a) extended through smart design, b) easily repairable, and either c) reused again or d) easily recycled at the end of their lifetime.

Extending the lifecycle of smartphones

One important example of the extension of use, improved reparability and more widespread recycling is smartphones. According to Statista, the average smartphone lasts 2.75 years, before being replaced. While longer than the prior 2-year average, this is still a remarkably short lifespan for a sophisticated product with such a high content of precious and battery metals. Remember: just 35% of the 53 million tons of electronic waste discarded globally are currently recycled.

New regulations obliging smartphone manufacturers to make affordable spare parts available for consumers and third-party repairers are helping to extend the effective lifecycle of existing smartphones, while a number of second-hand specialist resellers now enable an effective second life for smartphones.

Exponential increase in raw materials prices are a huge economic incentive

Not only do companies and consumers increasingly want to be mindful of the environment in their choices, but it now makes more sense for their wallets. In just four months, commodity prices (energy, metals, foodstuffs) have soared overall by 33% in euro terms. In recent years, the developed world has been used to ever-cheaper commodity prices, but this is over. From now on, higher costs and our limited budgets will prevent us from being so wasteful.

“Upcycling” is the new fashion trend

To “upcycle” means to recycle or reuse something in a way that adds to the original object’s value. So, upcycling is taking something old and creating something new. Don’t think second-hand, rather think of buying “vintage”, “preloved”, “preowned” clothes and goods – and being fashionable in an eco-friendly way!

Circular economy leaders, clean energy, energy efficiency indices all post strong recent recovery

Post the recent selloff in stock markets in Q1 2022, we are seeing an attractive entry point for investors in funds and other investment products focused on the circular economy, energy efficiency and renewable energy.