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Clean Economy strategy - July 2023

  • 18 July 2023 (5 min read)

New proposal to raise the EU1 2030 renewable energy target demonstrates ongoing momentum behind the energy transition

  • Global equity markets rallied driven by lower inflation and resilient economic activity
  • ‘Low Carbon Transport’ outperformed while other themes showed weakness  
  • We started a position in a leading engineering simulation software company

What's happening?

Global equity markets rallied in June in US dollar terms as lower inflation and resilient economic activity raised hopes of a soft landing in the US and Europe. US equities led the way but all regions posted positive performance. On a sector basis, returns were broadly positive too with notable strength in consumer discretionary and industrials while more defensive areas such as real estate and utilities lagged the broader market. Growth performed in line with value during the month.

The macroeconomic environment continues to be mixed with softening inflation balanced against resilient economic activity and tight labour markets. Headline inflation decreased in the US, from 4.9% to 4% year-on-year in June, and Europe, from 8.1% to 7.1%, but the pace of price increases was unchanged in the UK at 8.7% leading the Bank of England to surprise markets with a larger-than-expected 50bps increase in the interest rate. Meanwhile, Composite Purchasing Manager’s Indices remain in expansionary territory across most major economies, with strength in services more than offsetting weakness in manufacturing, and wage growth continues to surprise on the upside.

The world’s leading exhibition for the solar industry, Intersolar, took place in Munich during the month. Feedback suggests residential solar demand has cooled slightly in the US and Europe, albeit from elevated levels, but utility scale activity remains extremely robust. Companies shared numerous exciting technological developments including high efficiency perovskite solar cells, bidirectional EV chargers and full home energy management systems that incorporate solar and storage, along with EV charging and heat pumps.

Elsewhere, a proposal to raise the European Union’s (EU) renewable energy target from 32% to 42.5% by 2030 was backed by a European Parliament committee. The bill still needs formal approval from the full EU Parliament and EU countries before taking effect but demonstrates the ongoing momentum behind the energy transition in the region. Europe generated 22% of its energy from renewable sources in 2021 so significant investment is needed to meet either target.

Portfolio positioning and performance

The portfolio underperformed the broader equity market represented by the MSCI All Country World Index in June driven by weakness in ‘Agriculture & Food Industry’ and ‘Smart Energy’ holdings. On the positive side, ‘Low Carbon Transport’ notably outperformed.

Returns in ‘Agriculture & Food industry’ were impacted by our position in animal genetics company Genus. Despite good performance in the rest of the business, continued weakness in the price of pork in China has weighed on profit estimates for the current fiscal year. However, looking ahead into 2024, a recovery in China and FDA approval of its PRRS virus resistant pigs in the US could provide strong tailwinds for the stock. Our position in Croda also hurt after the diversified chemicals maker profit warned on customer destocking in consumer and industrial end markets which it expects to persist into the second half of the year. Despite this, we are encouraged by recent comments on increasing customer engagement across active cosmetic ingredients for it is a good indicator of future demand.

‘Smart Energy’ was weighed down by Vestas Wind Systems, which manufactures, installs and services onshore and offshore wind turbines globally. Shares weakened after rival turbine manufacturer Siemens Gamesa announced a €1bn provision to address defects found in 15-30% of its equipment in operation. The issue appears to be company specific but we are mindful that the industry continues to suffer from elevated levels of warranty provisioning. Orders for Vestas turbines have been relatively muted of late but we expect clarity on IRA credits to lead to better momentum later this year.

In ‘Low Carbon Transport’, returns were aided by our position in leading electric vehicle (EV) manufacturer Tesla. The company is seeing strong demand for its EVs after cutting prices across all models and in all regions over recent months. Shares are also being supported by increasing interest in artificial intelligence applications where Tesla has a leadership position given almost 5 million cars equipped with full self-driving hardware.

We initiated a position in leading engineering simulation software company Ansys during the month. The company’s software provides a virtual alternative to physical testing which is more efficient and often achieves better outcomes. Ansys is a key enabler of energy efficiency innovations, along with the electrification of industry and transport, and strong growth in new use cases is increasing its total addressable market. Conversely, we exited our positions in metal recycling company Befesa and specialist ingredients company Corbion which are more cyclical in nature and may come under pressure in a deteriorating macroeconomic environment. We also sold out of aluminium can producer Ball during the month on a slightly weaker growth outlook as we see better opportunities elsewhere.


The outlook for companies that provide solutions to the world’s greatest environmental challenges remains extremely positive despite the volatile macroeconomic backdrop. Support for the energy transition continues to increase with most major nations now having meaningful decarbonization plans in place. The European Union led the way with its ‘Fit for 55’ package, which aims to reduce net emissions by 55 percent by 2030, while China’s goal of peak carbon emissions in 2030 and net zero by 2060 is a significant step in the right direction for the world’s largest polluter. In the US, the Inflation Reduction Act is the largest climate investment in US history and will help to lower the nations carbon emissions substantially by the end of the decade. Meanwhile, the newly adopted Global Biodiversity Framework sets out an ambitious plan to halt and reverse biodiversity loss by 2030.

Achieving these goals requires significant investment in the areas of ‘Smart Energy’ and ‘Low Carbon Transport’. Energy infrastructure requires smart grids and interconnect capacity between regions, renewable power and energy storage solutions while transportation systems will move away from fossil fuels towards a combination of electric vehicles, biofuels and green hydrogen. Within ‘Agriculture & Sustainable Food’, high crop prices and rising input costs are supporting demand for agritech solutions which improve yield and farming efficiency. Elsewhere, companies in the area of ‘Natural Resource Preservation’ which facilitate recycling and reusing, along with better management of resources, are helping to mitigate environmental damage while meeting the needs of a growing population.

The Russia-Ukraine crisis has served to underscore the need for Energy Independence and has therefore strengthened the resolve of both policy makers and those for whom energy security and uptime is critical. This strong and resilient demand for clean technology solutions, now further underpinned by energy security considerations, encourages further innovation which continues to enhance the investment potential within the clean economy.

Following the sharp derating in valuations of long duration assets in 2022, many innovative companies in the Clean Economy universe look attractively valued in the context of robust long term growth outlooks. We do not expect the narrow market leadership experienced year-to-date to persist and retain the view that high quality management teams, operating businesses with a sustainable competitive advantage in markets that benefit from secular tailwinds are best placed to deliver capital growth in the long term. The portfolio is therefore well positioned to benefit from the secular growth opportunities we see within the Clean Economy.

No assurance can be given that the Clean Economy strategy will be successful. Investors can lose some or all of their capital invested. The Clean Economy is subject to risks including Equity; Emerging Markets; Global Investments; Investments in small and micro capitalisation universe; Investments in specific sectors or asset classes.

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Innovative companies are creating solutions to address pressures on scarce natural resources and the need for greenhouse gas emission reduction.

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Clean economy strategy

Our Clean Economy strategy aims to capture the long-term growth potential of new and evolving technologies which allow us to operate our economy and society sustainably.

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