Decarbonisation is a growing topic of interest. But what does this mean for your investments? Let’s take a look at some of the companies set to benefit from decarbonisation because they’re companies that could make you money as the move to carbon-neutral picks up pace.
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The importance of decarbonisation
Climate change is quickly becoming a priority around the world. It’s having an impact on finances and sustainable investing is becoming more common. There are opportunities for investors in all sustainable sectors – even veganism!
In the battle to lead the digital world, Europe lost to the US. Globally, the largest tech companies – like Google, Amazon and Facebook – are all based in the US.
However, online trading and investment company Saxo Markets believes Europe has another chance. The company describes the green transformation as the ‘biggest rewiring’ of our society since the industrial age.
Europe is the only continent that has reduced its carbon emissions since 1990. Meanwhile, the US has not changed its emissions but the recent trend is downward. However, China has significantly increased its carbon emissions.
As the move to decarbonisation continues, Europe still leads the way in green technology. This is largely because Europe has the biggest domestic market for green technology and the highest level of government support.
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The companies set to benefit
Saxo Markets has drawn up a list of 40 European companies that it believes are set to benefit from decarbonisation.
These are all companies that focus on eco-friendly technology. The EU aims to be carbon neutral by 2050, and as these companies will help the EU achieve that target, they should do well.
The companies cover a range of industries, including wind, solar, hydro, fuel cells, bioplastic, electric vehicle car-sharing services and recharging stations and energy storage.
Renewable energy firm Orsted AS is on the list. It has a market cap of €48.7 billion and a difference to price target of 17.9%.
A price target is an analyst’s prediction of what the stock should cost if it is valued fairly. So, the percentage difference shows how much a stock’s value will increase or decrease to reach this target.
Danish wind turbine solutions firm Vestas Wind Systems made the list. It has a market cap of €29.7 billion and a difference to price target of 8.1%.
Clean energy provider Ceres Power Holdings has a difference to price target of 75.3%, meaning that Saxo Markets thinks the stock will increase in price a lot. It has a market cap of €2.3 billion.
As with all stocks, returns are not guaranteed with these companies. Remember that the value of your investments can go up as well as down.
An expert’s view on decarbonisation
Decarbonisation is a tricky topic. Peter Garnry, head of equity strategy at Saxo Group, shared some thoughts on what investors should consider.
He said: “The key risk in Europe’s decarbonisation theme is foremost equity valuations, as investors have aggressively discounted the future across all companies with a green technology profile.
“High equity valuation at the starting point of investing is on average associated with lower future returns, so investors must be careful when investing in the green transformation.”
Many green technologies are still maturing. As a result, there are uncertainties around which technologies will be the big winners. Peter warns that investors should expect a lot of companies to fail to deliver on growth and expectations.
Other risks for green transformation stocks are higher commodity prices and higher interest rates, as these could compress profitability.
Peter added: “The accelerated path to a green society on all levels will push our physical world and technologies to their limit.
“The green transformation will be the single biggest contributor of inflationary pressures over the coming decades, combined of course with onshoring of production from Asia and urbanisation in the developing world.”
