Investment themes 2023 - Updated in September
In today’s world of heightened geopolitical tensions and emerging shortages of energy and other commodities, new trends of energy & raw materials security, nearshoring of goods production and technological security have emerged. The increasing prevalence of global weather volatility in the form of floods and droughts highlights once again the focus on food and water security.
The need for greater energy security remains a key driver behind both clean energy and energy conservation investment in Europe. Replacing Russian pipeline natural gas and reducing overall gas & electricity demand are near-term priorities, especially in Europe. The circular economy is an important tool in decreasing indirect energy consumption in the production/provision of goods and services.
We prefer equity solutions for this theme: direct lines, funds and trackers. Other attractive solutions include private equity funds investing in energy infrastructure. This theme has several sub-themes:
- Efficiency, reuse, and recycling: investment in circular economy leaders.
- Energy Efficiency: beneficiaries of the US Inflation Reduction Act and European equivalents, boosting investment in renewable energy generation, infrastructure and storage, including solar energy, industrial battery storage and critical battery metal production, and biomethane collection..
- Water recycling and Technologies for water efficiency, recycling and desalinisation.
- Cybersecurity and Safety: cybersecurity, personal and industrial safety.
- Focus on local production of energy, goods & services.
- Production costs and thus the price of the energy transition are rising sharply. Without strong government support, the transition could slow down, given that many countries are heavily indebted and the cost of debt rocketed in 2022. Very tricky fiscal and societal choices must be made.
- Today it is still difficult to source essential materials and components. This is particularly the case for areas in which demand is growing rapidly (e.g. lithium), because supply is struggling to keep up with the pace of demand. This could hamper the transition.
- Generally speaking, energy is a cyclical sector. Energy prices fluctuate considerably in tandem with economic growth, but also with geopolitical events that are often unpredictable and uncontrollable. Return on investments can therefore be highly volatile and sometimes lower than expected.