Jeremy Grantham: investors are waking up to climate change

“As climate change has become increasingly problematic… the investment community is starting to pay attention to the investment risks it poses,” says Jeremy Grantham of US fund manager GMO. The good news is that “you don’t have to sacrifice returns in order to invest in companies helping the world address climate change”. Prices for many firms in the sector look reasonable relative to their prospects. “Despite strong growth projections, the climate-change sector has generally been trading in line with the broad equity market.”

While US president Donald Trump’s decision to pull America out of the Paris Agreement was seen as a big blow for the sector, “climate change is a global problem… and rather than wavering on their promises, other countries have instead rallied together to reaffirm their commitments”. For example, “Germany, France, China, India and others are setting goals to eliminate internal combustion engine vehicle sales within the next two decades or so, and many countries are targeting dramatic increases in renewable energy capacity”.

In any case, public subsidies are just the “icing on the cake”. Even without subsidies, “we are approaching an inflection point where clean energy solutions will be cheaper than conventional alternatives”. Indeed, “various projections indicate that electric vehicles will be cheaper than internal combustion engine vehicles within five to ten years”, making them “an economic no-brainer”. This, alongside “a growing global awareness of the magnitude of the problem we’re up against, will support secular growth in the climate-change sector for decades to come”.