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Investment Under An American Sun

Marouane Bouchriha, 16 September 2020


The European private banking and wealth management house looks at recent data on climate change, and asks how this is sure to feed into worries, and investment ideas, that could be a factor in the 2020 US presidential elections.

The following commentary about how US investors consider climate change issues, and how this feeds into the 2020 presidential election race and the policies that may stem from it, comes from European private bank, Edmond de Rothschild, and is written by Marouane Bouchriha, international equities fund manager. The editors are pleased to share these comments and hope they stimulate debate. For example, can any drive to reduce carbon emissions in the context of an industrial, modern economy work without a serious look at nuclear energy? And are the forest fires mentioned here to some extent the result not just of global warming, but a change in how forests are managed (in the past, loggers and managers would cut away under-brush, etc, to reduce the risk of a catastrophic blaze).

The usual editorial disclaimers apply. Jump into the conversation! Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com  

This summer, temperatures hit an all-time record high: 54.4°C in Furnace Creek, California. (1) The record was also broken in the Île-de-France region around Paris, with 39.2°C recorded in August. These extremely high temperatures are now affecting our everyday lives. In California, for the first time in 20 years, the state imposed power shut-offs because of consumption peaks due to the demand for air-conditioning, and to avoid damage to transformers that might cause fires. (2)

Almost two thirds of Americans now think that the federal government should do more to combat climate change, and almost as many emphasise that the problem now affects their communities in some way, according to a survey published in June by the Pew Research Center. In less than 10 years, the proportion of Americans describing climate change as a “major threat” has risen from 44 per cent to 60 per cent: 88 per cent for Democrats and 31 per cent for Republicans. (3)

Joe Biden showed a clear grasp of the situation when he announced his new climate plan, known as the “Clean Energy Plan”. It is a much more ambitious version than his proposals during the Democratic primaries. Inspired by the European Green Deal, it aims to rally the left wing of the party around the issues of employment and American technological superiority.

At a time of recovery plans worth trillions, he needed an attention-grabbing figure: $2 trillion to be invested over his first term. This is an enormous sum, even compared with the European Green Deal’s €1 trillion over 10 years.

The plan covers 5 areas:

-- Electricity generation, with an ambitious objective to decarbonise the sector by 2035; 
-- Transport, with stricter emissions standards, encouraging the growth of electric vehicles and the return of an ambitious rail policy; 
-- Buildings, aiming to reduce their carbon footprint by 50 per cent by 2035;  
-- Hydrogen, with support for research and for the sector, in order to achieve parity of cost between green hydrogen produced by electrolysis and grey hydrogen produced by reforming natural gas; and
-- Agriculture, in order to support the investments required to decarbonise the sector.

The scale of this programme will depend on the scope of the potential Democratic victory. Even in the event of a victory in the White House and Congress, if the Republicans retain control of the Senate, they will be able to block legislative changes.

The opposite scenario of a Republican victory is not necessarily bad news. Despite his rhetoric, it is under Trump that new renewable additions have accelerated to make up 55 per cent of new additions to capacity, thanks to falling costs. (4)

It is worth remembering that it was President Nixon, a Republican, who created the EPA (Environmental Protection Agency) and signed the Clean Air Act and Clean Water Act.

Which opportunities?
Contrary to preconceptions in Europe, the United States has significant technological and industrial resources in the domain of green technologies, and investment opportunities are perhaps even greater than in Europe. 

For electricity production, many American utilities have turned to renewable sources. Utility scale renewables generation (excluding hydro) increased by 22 per cent compared with last year and represents 13 per cent of total generation. (5)   

Nextera and Avangrid stand out and are competing with the European leaders. The plan requires massive acceleration in the deployment of solar and wind power, which will benefit domestic players like TPI Composites (a manufacturer of wind turbine blades), First Solar (a solar panel producer) or Solaredge (which makes solar inverters and domestic batteries).

In the transport sector, many start-ups have benefited from Tesla’s success in raising funds and launching electric models such as Rivian and Lucid Motors. Joe Biden highlighted that the United States has fallen behind China in the development of the electric vehicle and battery industry. He wants to use “all the levers of the federal government” to make the US a leader.

The other big name in transport in 2020 is Nikola. The American company wants to transform the lorry market by launching a hydrogen lorry. The group is still in the development stage, but its success in the stock market is a boost for the hydrogen sector, bringing in its wake many fuel cell manufacturers like Plug Power and Bloom Energy.

In buildings, there are many levers for action and many players who could get involved. Today, just 1 per cent of property is renewed each year. (6) To reduce the greenhouse gas emissions of buildings, it is necessary to move from gas heating to heat pumps, which will also increase the electrification of buildings. Within this sector, players such as Trane, Carrier and Eaton seem to be well positioned. The other course of action regarding buildings is the development of smart meters, to improve tracking of customers’ usage and link electricity production to consumption more effectively. Itron, an American smart meter specialist with a global presence, is one of the companies who have distinguished themselves in this field. Itron solutions are used in 100 countries and 80 per cent of electricity in North America is forecast by Itron technology. (7)

In agriculture, there are many players on the American market. For example, Deere, as the leading manufacturer of agricultural machinery, would benefit from renewed investment in modernising the sector. A stronger focus on fuel efficiency for agricultural machinery and on reducing the use of pesticides and fertilizers could drive the replacement cycle. Another beneficiary is Trimble, in the domain of precision agriculture, which offers measurement technologies to reduce the usage of inputs.

This rich reservoir of companies shows that the world has woken up to the climate emergency, whatever the ideological position of its leaders. The market is now as important as regulation in driving environmental protection. It does not wait for politicians, having understood the now tangible impact of climate imbalance. 

According to a recent study by Ohio State University, Greenland’s glaciers have passed a point of no return. The melting of this icecap is now irremediable, even if climate change were to stop today, because snowfall can no longer compensate for the lost ice.

Given that Biden spoke of an effort “on a scale well beyond the Apollo program”, it seems that the environmental theme will remain in the spotlight for a long time in our view.


 1, https://www.leparisien.fr/environnement/meteo-54-4-c-dans-la-vallee-de-la-mort-aux-etats-unis-un-record-mondial-17-08-2020-8369103.php 
 2, https://www.bloomberg.com/news/articles/2020-08-17/california-blackouts-heatwave-raises-fire-risk-in-climate-change-loop
 3, https://www.washingtonpost.com/climate-environment/2020/06/23/climate-change-poll-pew/ 
 4, https://www.economist.com/united-states/2020/03/14/a-renewable-energy-boom-is-changing-the-politics-of-global-warming   
 5, https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_es1a 
 6, https://www.iea.org/reports/global-status-report-for-buildings-and-construction-2019 
 7, https://www.itron.com/na/why-itron 

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