#Market Strategy — 13.02.2020

The Environment And The Future Of Our Planet: Focusing On Water And Waste Management

THEME 6

Theme d'investissement 6 | BNP PARIBAS WEALTH MANAGEMENT

There is a growing awareness that human society and the global economy are closely related to the ecosystem, in particular water and energy sources. This has led to government-related actions linked to the Paris agreement COP21 and the UN’s Sustainable Development Goals (SDGs), etc. We expect a growing demand for goods and services, in particular related to water availability, waste management as well as clean and renewable energies. The awareness related to ESG criteria should also incite investors to focus on such sectors.

OUR RECOMMENDATIONS

We focus our attention on 2 sub-themes:

1.a. Water

•provide access to water

•guarantee the quality

•optimise its use

1.b. Waste management

We have identified opportunities for investors interested in collection methods, recycling, waste-to-energy solutions and any innovations that a company may offer in these fields. 

2. Clean and renewable energy: Promising industries are those related to technological innovation and equipment in solar, wind, geothermal energy and hydroelectricity. Other chief areas include batteries and related chemicals as well as power and grid equipment-makers.

We will focus our attention on equities of companies that are leading players in these areas but also via actively-managed funds or ETFs (Exchange Traded Funds).

 

Opportunities in water and waste management

Water

According to the UN, “Water is a precondition for human existence and for the sustainability of the planet”. They also argue that “water is at the heart of adaptation to climate change, serving as the crucial link between the climate system, human society and environment”. Governments and companies will likely be compelled to invest heavily in water management over the coming years. We expect three main goals to drive demand: i) provide access to water, ii) guarantee quality and iii) optimise use. Technological innovation is very strong in the areas of water treatment, sanitation, desalinisation, the design of pumps/filters, automation and new optimisation techniques, making networks more efficient (smart meters, sensor networks, leak detectors).

Waste management

This activity should lead to a circular economy model focused not only on waste management, but also on the reduction at the outset. Public authorities generally encourage rubbish-sorting, investments in recycling and the reduction of overcapacity in infrastructure for waste treatment based on incineration. In this changing environment, we have identified opportunities for investors interested in collection methods, waste-to-energy solutions and any innovation that a company may offer in the field.

Plastic waste

Plastic waste has been increasingly in the spotlight in recent months. Media reports and documentaries have increased the sense of emergency to tackle this huge challenge. By 2030, all plastic packaging used on the EU market will be reusable or recyclable in a cost-effective way. The plastic recycling market will therefore grow in the coming decades.

 

Opportunities in clean and renewable energies

We expect the ‘energy transition’ to gain traction over the coming years. By energy transition, we mean structural shifts from traditional, centralised, fossil-based production that do not have to pay for negative externalities towards a clean/renewable energy and a decentralised model where technological innovation and the pricing of externalities will be the key drivers. The speed of the transition will be linked to technological innovations, government policies (carbon tax and/or subsidies for clean energies), and changing consumer and investor preferences: ESG/SRI, or Socially Responsible Investment). This trend is supported by media reports on climate change, ‘Fridays for future’ demos and the introduction of investment themes such as Environmental, Social and Governance.

The demand for renewable energy sources is also likely to be fuelled by the fall in prices in production and energy storage (electricity, hydrogen etc.). Promising industries are those related to technological innovation and equipment in solar, wind, geothermal energy and hydroelectricity. Other key areas will be batteries and related chemicals as well as power and grid equipment makers.

MAIN RISKS

The investment solutions related to this theme are mainly linked to equities. Despite the relevance and high potential of this theme, investment solutions will be subject to fluctuations in the global equity markets.  However, some activities (for example Utilities) are less sensitive to those markets. Another factor that should limit the risk relative to global equity markets is that companies related to this theme should benefit from a high Environmental, Social and Governance (ESG) rating.

A global recession could severely limit the ability of governments to support the necessary transitions.  A sharp drop in oil prices could represent a major constraint for renewable energies.

Graphique - FAITS RELATIFS AUX EFFETS DE SERRE (1880-2018) - Thème 6