Electric vehicles, renewable energy attractive ESG investments: Credit Suisse impact fund
Janice Lim
DESPITE global headwinds, the outlook for investing with environmental, social and governance (ESG) considerations is better than 12 months ago, according to Holger Frey, a portfolio manager for one of Credit Suisse’s impact funds.
For Asian markets, specifically, companies that produce solutions for electric vehicles, renewable energy, as well as recycling would likely be the winners in the near future, said Frey, who manages investments for the fund.
Differentiating the various forms of ESG investing, such as funds based on ESG ratings versus the thematically driven ones, Frey said thematic ESG funds that are focused on environmental solutions are “very attractive” for investors.
“Investors are obviously very concerned with all the headwinds we’re talking about in the market. But when you look at environmental impact, there’s a lot of strong support coming in,” Frey told The Business Times.
He cited the REPowerEU plan, which contains a suite of measures to reduce the European Union’s reliance on Russian fossil fuels, and the United States recent passing of the Inflation Reduction Act, which aims to invest US$369 billion in climate solutions, as examples.
“We think it’s an interesting time for investors therefore to look at these strategies, because we had a correction in the market, the valuation is attractive, and the growth outlook is actually better than it was 12 months ago,” he said.
A NEWSLETTER FOR YOU
Friday, 12.30 pm
ESG Insights
An exclusive weekly report on the latest environmental, social and governance issues.
The rising penetration of electric vehicles, the low penetration of renewable energy in many Asian countries, as well as greater demand for recycling are some of long-term trends which could spur an upside for these solutions.
The electric vehicle market, which is mainly seen as a premium product, is starting to go mass market. This can be seen in China, where lower-range models are already being manufactured, he said.
While some renewable energy sources like solar and wind power are mature and established business models, the potential for growth is in the other solutions built around them. For example, a mature technology such as solar panel installation could be enhanced when combined with battery storage solutions.
The impact fund, which has about US$850 million in assets under management, invests in mostly small- and mid-cap public companies that provide products, services and technologies aimed at solving environmental challenges. The revenue generated from these environmental solutions should be at least 50 per cent of the total revenue of the company.
Frey said that the fund’s focus on pure-play companies reflects a belief that they will benefit from a growing addressable market as climate change drive the demand for these solutions.
On how increasing scrutiny from regulators on ESG-labelled funds would affect them, Frey said that his team already utilises several methodologies to assess the full life-cycle impact of the products sold by the companies they are investing in.
This includes disclosures from the companies’ own sustainability reports, ESG data from third-party providers, assessments on whether the companies are aligned with the United Nations’ sustainable development goals, as well as having carbon emissions and water consumption reductions as key performance indicators.
Frey said that they are constantly engaging with companies in the fund to request them to provide more granular disclosures.
“This is something we see as our responsibility as impact investors to proactively reach out to have this active shareholder dialogue. When it comes to regulation, sometimes we even think it’s good to have it a little bit more detailed, to be honest,” he said.
“That’s the reason why we are not afraid of regulations, and I’d be really welcoming more disclosures.”
Copyright SPH Media. All rights reserved.
