Save & Invest Financial Planning

Change in all directions supports the case for equities in the year ahead

Change is all around us, not just the changes forced by Covid, but political, environmental, societal and technological. Change is always disruptive and in many cases destructive but it can also be immensely creative. The Pandemic still dominates international governmental concerns and actions, but beyond that, with Mr Biden in the White House, the environment is taking centre stage and the fiscal stimulus he intends to deliver is putting green decisions, technology and investment at its core.

This will accelerate the direction of change and create opportunities for global businesses focused on innovation and sustainability.

Green Energy Growth Is Stimulating Economic Growth

This week Mark Carney, former high profile Governor of The Bank of England, said on Bloomberg that "climate change is the biggest risk to the world and the biggest opportunity." He noted, that on joining the Bank of England and thinking about financial resilience, he was aware that world wasn't dealing with climate change fast enough, and that, if real change was to happen it needed strong leadership in the private sector. The Bloomberg discussion noted that 66% of businesses believe money will be made in decarbonisation. It is a strategic issue for almost every company and so it will be at the heart of returns.

A large number of the world's major, and small, economies have committed to Net Zero by 2050, and China by 2060. Net Zero is the goal to have carbon emissions in balance with the carbon that is removed from the atmosphere, by either reducing or not creating emissions and removing those we do create.

This is said to be an ambitious target, but many companies are setting far more ambitious targets, indeed a growing number of businesses have already achieved net zero. Mark Carney puts this down to pressure from society to do the right thing and consumers are making active green choices, so in his view, if a business is to thrive or even stay in business, their model needs to be focused on emissions and sustainability.

This move by society, will have a far greater impact than even the welcome move of the USA rejoining the Paris Accord and is creating trillions of investment. 70% of emissions are down to the energy sector, so a huge opportunity to turn electricity green and an opportunity for great value creation.

The Drive for Net Zero

Last year Save & Invest re-orientated our portfolios towards funds and managers with experience and focus on sustainable investing, with positive results. Sustainable investing is now mainstream investing; the companies that are building green focused products and services are those most able to grow in the post pandemic resurgence.

The Spanish energy business, Iberdrola, which owns Scottish Power, began its move from coal to renewables over fifteen years ago, under the innovative leadership of Ignacio Galan, and is now the world's largest producer of electricity, without using coal. Iberdrola is held in Blackrock funds featured in many of our portfolios. It plans to invest 25 billion euros by 2025 in new developments and technologies and maintain 500,000 jobs.

Digitisation of energy is almost as important as its generation. At its simplest it is the collection of data on electricity use and production, on a massive scale, to enable efficient generation, use and pricing. It allows small producers to sell to grids, flex demand and drive down costs and is encouraging innovation. It is not surprising that the growth in green energy businesses is closely linked to technology businesses. Semiconductor business Infineo, held in Liontrust Sustainable Future Fund, is creating new products to manage voltage flows, address cyber security that is essential to power grids and electronic components for applications from automotive to LED lighting or health care. All with a strong sustainable focus.

Green Regeneration

The opportunities for investment returns linked to companies making the change to the green economy is substantial. Blyth on the North East Coast of England is transforming its coal heritage into a key centre for the Wind Energy Sector. Its old deep water harbour is now the test site for some of the world's largest wind turbine blades.

Wind is now big business and companies such as Orsted, the Danish energy business, featured in several of the funds we use, including Baillie Gifford Positive Change, Liontrust Sustainable Futures and Royal London Sustainable, is manufacturing turbines, creating and storing electricity, much of it here in the UK. It claims to have created over 100 major contracts with UK companies in the past five years alone.

For example, they cite start up company Lipmet, which following development work with Ørsted, received support from Scottish Enterprise, developed a new technology for lifting technicians onto wind turbine platforms that is safer, simpler and more effective.

Green technologies are needed in all businesses and are creating new jobs and returns for investors, which is why we are confident that well diversified portfolios, that are tapping into the expertise of managers with established credentials in sustainable focused investment, will benefit from consumer choices and the impact of governments' targets and stimulus actions.

If you have heard enough about sustainable, environmental and socially responsible investment, spare a thought for Tesco, whose shareholders, this week, filed a resolution to increase the proportion of healthy products in its sales. Their institutional and some private investors believe that there is a financial risk to the business from legislation on obesity and general consumer trends.

There is change happening everywhere, but we have not forgotten traditional businesses, not exactly in the sustainable category but the hope of some sun is sustaining many of us. Ryanair, currently struggling with the pandemic, is also tipped as a growth stock by many fund managers. It is taking advantage of low financing costs to build its fleet and be ready to take advantage of the inevitable casualties in its sector in Europe as soon as we can all travel again.

How sustainably focussed is your portfolio or pension plan?

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