Cash in on the growth potential of electrification companies

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Federated Hermes Sustainable Global Equity invests across a diverse mix of growth, quality, and value companies, and across developed and emerging markets. It seeks out firms whose products, operations and activities contribute towards a more sustainable future. These companies are well placed to benefit from structural sustainability trends that are reshaping industries.

One such trend is electrification, a powerful yet often overlooked investment theme. As industries shift from fossil fuels to electricity, demand is accelerating, unlocking exciting investment opportunities in areas ranging from transport and heating to mining and steelmaking. Importantly, electrification represents one of the easiest and most cost-effective ways to enhance energy efficiency and reduce emissions – especially when powered by renewables.

Thanks to decades of innovation, the cost of core components such as batteries and power electronics has fallen by 99% since 1990. This has transformed the economics of electrification and accelerated adoption. This is just the beginning. Continued innovation will drive stronger returns and broader uptake, and the most compelling opportunities lie with companies enabling the transition: delivering the means to power an electrified future.

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Three stocks to watch in electrification

Taiwan Semiconductor Manufacturing Company (Taipei: 2330) supplies 90% of advanced chips globally and is a critical partner to technology giants such as Apple and Nvidia. Its cutting-edge innovations deliver the enhanced performance and reduced power consumption vital to compact electrified systems.

The firm’s technological superiority and scale position it to benefit from rising demand across sectors. Exposure to electrification, supported by its diversified customer base and sustainability-driven innovation, boosts TSMC’s growth prospects. The Industrial Technology Research Institute estimates that by 2030, each TSMC chip will save the world nearly seven times the energy needed to produce it.

Trane Technologies (NYSE: TT) is a global leader in heating, ventilation and air-conditioning systems, with a strong focus on electrifying building infrastructure. Trane’s systems cut energy costs, improve comfort and help meet emissions regulations, significantly reducing energy use in existing buildings. Heating and cooling comprise 40% of a building’s energy consumption, making Trane’s impact especially significant. Its thermal management systems are between three and five times more efficient than conventional solutions, making up for the higher upfront cost of their units. The company’s service and controls business provides recurring revenue and strengthens relationships with customers.

Schneider Electric (Paris: SU) is a global leader in the digital transformation of energy management and automation. Its platform provides an integrated, hardware, software and services solution enabling electrification across buildings, data centres, industry and infrastructure, cutting emissions and energy costs.

Schneider worked on JPMorgan’s new headquarters in New York, Manhattan’s largest all-electric skyscraper, which is expected to achieve net-zero operational emissions powered by renewables. The firm’s effective strategy and positioning in a market with high barriers to entry has fuelled strong returns for shareholders and consistent dividend growth.

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Martin joined as a senior analyst on the European Equities team in March 2013 and is now Head of Sustainable Equities and lead portfolio manager of the Sustainable Global Equity strategy. Prior to joining, he was an investment director at Scottish Widows Investment Partnership. Martin joined SWIP as a graduate and spent eight years there, with spells investing in UK, US and Japanese equities. Martin graduated from the University of St Andrews with an MA in Economics & Modern History and is a CFA charter holder. In 2015, Martin featured in Financial News’s ‘40 Under 40 Rising Stars of Asset Management’, an editorial selection of the brightest up-and-coming people in the industry.