Future titans of a low-carbon world

On 16 August 1858 a telegram was sent across the Atlantic Ocean – the first. It read, “Glory to God in the highest; on earth and good will towards men”. Though a little melodramatic, this was a significant event for mankind – perhaps the equivalent to landing on the Moon. It took engineers 19 years to work out how to install a cable at the bottom of the Atlantic ocean.

It was an incredible achievement that bridged the economic and political systems of the UK and US inextricably. It marked the dawn of globalisation – an epoch that has brought unprecedented wealth for both countries and the rest of the world.

Who would have thought that 150 years later, oceanic cable is once again threatening to be just as disruptive. We’ve already witnessed the birth of the internet, which has led to an explosion of information and the creation of multi-billion dollar dotcom companies, all made possible by fibre optics strewn across the ocean floor.

Now it’s the turn for renewable energy and the cables that carry it.

Laid deep below the ocean, along the seabed, cable manufacture Prysmian – who also manufactures fibre optic cable – is laying high-voltage direct current power lines to link offshore windfarms to the power grid. Just like the first telegram cable, at first they seem innocuous and rather irrelevant.

However, these powerlines are an absolute engineering feat in terms of design and can withstand the most extreme conditions deep below the ocean. They can deliver power more efficiently and from further afield than traditional alternating-current powerlines. They can reduce transmission loss and avoid large amounts of land when used above ground, lowering the number of ugly electricity pylons.

This means that renewable energy can now be offered as a cheap and infinite source of power for the first time in credible quantities thanks to clean tech. Electricity companies, therefore, no longer need to rely on dirty coal-fired power plants.
 
As a company, Prysmain can potentially avoid 27.2 million tonnes of CO2 a year from less transmission loss using this new form of clean tech. According to the US Environmental Protection Agency, this is the equivalent to the emissions produced by eight coal-fired power station in a year.*

Nevertheless, there is an even more powerful reason for investing in clean tech companies like Prysmian.

In the future, it’s highly probable that there will be some kind of price for carbon in all major economies. We don’t know exactly what form it will take and when – perhaps it will be a carbon tax or a carbon trading platform – but we know something is coming.

In December 2015, 175 countries signed up to an agreement to reduce carbon emissions to fight global warming and limit the rise by two degrees Celsius. China, the US and India have ratified this agreement, and with the European Union joining in, it has passed the 55 percent threshold. This agreement will therefore come into effect in November this year.  Unlike the famed Kyoto Protocol that the US – the world biggest polluter at the time – refused to sign, all the major economic powers are on board.

A steering mechanism will therefore, be needed when it comes into force. Its impact will be seismic. There will be winners and losers across all industries and sectors. Every company has a carbon footprint so when it comes online, it will impact portfolio returns.

This is the reason why we partnered up with South Pole Group – a global leader in helping companies reduce their carbon emissions. They’re a time-tested consultant whose experience will help us quantify the impact of carbon emissions from a company and its effect across its entire supply chain.

Companies that can reduce CO2 emissions by offering products and services that are more energy efficient than their competitors will be the main beneficiary – they are otherwise known as clean tech companies.

South Pole Group is helping us measure the potential carbon emissions that these clean tech companies could avoid using their technology. They calculated that an investment of EUR 10,000 in clean tech firms could avoid the equivalent emissions made by driving several hundred thousand kilometres a year in an (average) car.

If a price is placed on carbon emissions one day, it will provide a powerful tailwind for the share prices of these clean tech companies. By using their technology, innovative companies just like Prysmian are no different from those pioneers that lay the first transatlantic telegraph cable and the companies that thrived thereafter. These clean tech companies today are potential future titans in a new low carbon world.


* https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator


For more information about sustainable investing at Vontobel Asset Management visit the website vontobel.com/sust-invest