Investment in decarbonisation a key pillar of net-zero strategy

When State Super announced its net-zero strategy in December 2021, a key pillar of the strategy was investment in companies specifically positioned to benefit from decarbonisation-related spending globally over the coming decades.

A small, diversified portfolio of Global Decarbonisation Enabling (GDE) companies aims to increase members’ potential investment returns in a world of increasing carbon prices and decarbonisation activity. Though economic uncertainties have been growing in the form of rising inflation, interest rates and the drawn-out war in Ukraine, the decarbonisation investment theme has remained surprisingly steady in its progress.

Over the last few years, there has been a steady increase in country net-zero targets and efforts by companies globally aiming to reduce their future carbon emission-related costs. Nations have begun to compete for dominance in a ‘green and sustainable economy’ future, as the United States and Europe have been launching competing policies to attract international ‘green’ investment. Over the past two years, the price of carbon emissions has increased by almost 100% in Europe and over 70% in the United States.

State Super expects GDE companies share prices to generally benefit from this activity over the long term. The GDE portfolio allocation is positioned for a long lasting, global investment trend: over $120 trillion US dollars is expected to be spent on decarbonisation until 2050, but it may surprise you that only a relatively small proportion of companies worldwide are in the business of selling real-world decarbonisation solutions to benefit from this trend!

GDE companies are those able to capture spending on decarbonisation solutions by corporates, households and governments. While challenges in renewable energy investment are often discussed, the range of GDE opportunities is much broader than that – it’s not just about how societies generate power for daily life, but also how society grows our food, makes things, transports things and heats or cools indoor environments to be comfortable.

In May, the Board approved an increased investment to the GDE portfolio. Two examples of GDE companies are Purecycle Technologies and Ansys.

Purecycle Technologies has developed a new plastic recycling process that uses less energy to recycle waste than creating a new plastic product. This helps well-known companies such as Nestle and Proctor & Gamble in meeting both their cost and environmental targets by using cheaper and less energy intensive recycled plastic in all their packaging. This includes packaging for food & beverages and other consumer goods we see and use every day. It also has potential everywhere you see plastics, such as electronic goods and home furnishings.

Ansys is an engineering software design company that helps large companies to design products that reduce the use of resources and improve energy efficiency. In an age of more powerful computers, it is essential to design complex things on computers first before building and testing physical prototypes. Even in industries that are difficult to decarbonise such as aviation transport, General Electric works with Ansys to improve their jet engine and power system efficiencies.

With our specialist investment managers, we are continuing to research attractive decarbonisation opportunities to improve your returns while contributing towards a more sustainable economy.