When people think about investing in the energy transition, they often consider buying into renewable energy companies, carbon capture solutions, equipment manufacturers and other businesses related to reducing greenhouse gas emissions. But there is another way to play what by 2030 will become a US$4.5-trillion-per-year investment opportunity: owning the energy consumers. <\/p>\n\n\n\n
For Andrew Simpson, Senior Vice President, Portfolio Manager and Head of the Mackenzie Betterworld Team, this means owning companies that are making a concerted effort to become more sustainable rather than exclusively purchasing the shares of climate solution product companies. <\/p>\n\n\n\n
\u201cThese businesses don\u2019t have to buy solar panels, they don\u2019t have to source renewable energy, but they\u2019ve chosen to, and they\u2019ve integrated sustainability into their business processes,\u201d says Simpson, who runs the Mackenzie Betterworld Global Equity Fund. <\/p>\n\n\n\n
Focusing on the end user \u2013 which he points out is not related to the average person buying an electric vehicle or installing LED lights, though that is important for the transition, too \u2013 is critical because \u201cyou don\u2019t have innovation unless there is a market and support for it,\u201d he explains. <\/p>\n\n\n\n
These companies have the resources to make large purchases and can allocate capital to different solutions. \u201cThey\u2019re important to making things happen,\u201d he adds. <\/p>\n\n\n\n
Simpson, who has managed sustainable investment mandates for more than a decade, is always on the hunt for large-cap companies that can effect change. (His portfolios hold some small caps, too.) Companies like Microsoft, Amazon and Costco \u2013 names not usually associated with the energy transition \u2013 are ideal candidates for his portfolio because they are not only making a positive impact by reducing their own emissions, but they are also proven, often multinational, businesses with strong cash flows and a record of business success. <\/p>\n\n\n\n
\u201cThey have the ability to make things happen at scale,\u201d he says. \u201cThey have the corporate wherewithal to do an analysis and say, \u2018This is the best solution for us.\u2019\u201d <\/p>\n\n\n\n
Microsoft, for instance, has been 100% powered by renewable electricity through direct purchases and renewable energy credits since 2014. It is committed to carbon neutrality by 2030 and an even bolder proposal by 2050: \u201cThey actually want to reduce all the carbon they\u2019ve emitted since they became a public company in the 1970s,\u201d Simpson notes. <\/p>\n\n\n\n
To reach these goals, Microsoft has signed 25-year power agreements with renewable producers \u2013 binding contracts that make it impossible for the next CEO or board of directors to abruptly change course \u2013 for facilities, including its huge data centres. <\/strong>That includes delivering more than 10.5 gigawatts of renewable power capacity to Microsoft facilities in the U.S. and Europe between 2026 and 2030. The company is also spending an estimated US$806 million on two carbon removal contracts. <\/p>\n\n\n\n As for other end users, in 2023, Amazon, the world\u2019s largest corporate purchaser of renewable energy for 4 years in a row, announced 74 renewable power purchase agreements amounting to 8.8 gigawatts of capacity. While that has certainly helped Amazon\u2019s energy efficiency, it estimates its solar and wind farms have also generated more than US$12 billion in economic activity globally from 2014 to 2022. <\/p>\n\n\n\n In Canada, grocery giant Loblaw announced that by 2025, all its stores in Alberta will be powered with renewable energy, reducing the company\u2019s carbon emissions by 17%. It is accomplishing that feat by buying solar, wind and hydro-generated power from TC Energy Corp. <\/p>\n\n\n\n More broadly, over 430 multinationals have joined RE100, a group committed to obtaining 100% of its power from renewable sources by 2050. Together, they consume more than the entire generation capacity of Scandinavia, and they are not yet halfway to their goal of carbon neutrality. In Canada, major banks and grocery chains have made similar pledges. <\/p>\n\n\n\n As a portfolio manager attuned to environmental, social and governance (ESG) criteria, Simpson places a lot of weight on these actions. \u201cWe\u2019re focusing on companies with sustainable business models,\u201d he says. \u201cThe behaviour of companies is an important part of our review.\u201d <\/p>\n\n\n\n While the list of end users is growing, more companies must follow Microsoft and Amazon\u2019s lead if the global economy will reach net zero by 2050. Simpson is confident more businesses will make sustainability part of their strategy, especially as consumers increasingly choose to spend money with companies that share their values. That means investors and fund managers like Simpson will have more options for their portfolios. <\/p>\n\n\n\n \u201cThere is still a long way to go on this, but companies have gotten on board,\u201d he says. \u201cThere\u2019s an opportunity for them to do more, especially for companies that haven\u2019t yet made that commitment.\u201d <\/p>\n\n\n\n Because of technological advancements, businesses that may not have been considered end users can now become them. For instance, the waste industry emits a lot of methane, which is one of the worst greenhouse gases, notes Simpson. Now you have waste companies spending money to convert that gas to power, which they can use for their own trucks or sell to other operations. <\/p>\n\n\n\n \u201cYou can have a company in health care or financials or waste contributing because they\u2019re making investments or commitments to source renewable power,\u201d he says. \u201cThere are \u2013 and will be more \u2013 opportunities across every sector.\u201d <\/p>\n\n\n\n Considering the end user as part of the energy transition opens up a new crop of companies to investors. It also means you can own a large-cap diversified fund and still take ESG into account. <\/p>\n\n\n\n \u201cA diversified investment strategy is still contributing toward the energy transition,\u201d explains Simpson. \u201cYou can still feel good about investing in these types of companies. They\u2019re not creating solar panels, but they\u2019re contributing to the solution.\u201d<\/p>\n\n\n\n Contributor Disclaimer<\/strong><\/p>\n\n\n\n Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The content of this document (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it. <\/em><\/p>\n\n\n\n RIA Disclaimer<\/strong><\/p>\n\n\n\n The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" When people think about investing in the energy transition, they often consider buying into renewable energy companies, carbon capture solutions, equipment manufacturers and other businesses related to reducing greenhouse gas emissions. But there is another way to play what by 2030 will become a US$4.5-trillion-per-year investment opportunity: owning the energy consumers. For Andrew Simpson, Senior […]<\/p>\n","protected":false},"author":7472,"featured_media":102603,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"acf":[],"yoast_head":"\nExpanding the market <\/h2>\n\n\n\n
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