The Investment Opportunity of a Lifetime

In today’s Money Morning…a ‘tectonic shift’…the trend has accelerated due to the pandemic…this will create plenty of opportunities…and more…

In 2012, BlackRock’s CEO Larry Fink started writing an annual public letter to the world’s CEOs. If you are not familiar BlackRock, it is the world’s largest investment fund with close to US$10 trillion in assets under management.

In his yearly newsletter, Fink usually gives CEOs insights on the running trends he believes are important for investors.

And this year, in a letter titled ‘The Power of Capitalism’, he spoke of two major trends emerging from the pandemic.

One was the effects of the pandemic on the way we work and how it has changed the relationship between workers and employees.

Workers are demanding more work flexibility and better work environments. It’s not weird then that we are hearing about what many are calling ‘the great resignation’.

As Fink warned:

‘Companies not adjusting to this new reality and responding to their workers do so at their own peril.’

But most of the letter was dedicated to another trend emerging from the pandemic: the energy transition and the way the pandemic has changed the way we view and invest in companies.

As he said:

‘Most stakeholders — from shareholders, to employees, to customers, to communities, and regulators — now expect companies to play a role in decarbonizing the global economy. Few things will impact capital allocation decisions — and thereby the long-term value of your company — more than how effectively you navigate the global energy transition in the years ahead.’

A ‘tectonic shift’

It’s not the first time that Fink has written about this.

In 2020, he warned about climate risk and how we…

‘Will see changes in capital allocation more quickly than we see changes to the climate itself. In the near future — and sooner than most anticipate — there will be a significant reallocation of capital.’

And in 2021, he wrote:

‘No issue ranks higher than climate change on our client’s lists of priorities. They ask us about it nearly every day.

‘We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.’

As he wrote in the latest letter, in the last couple of years, we’ve seen a ‘tectonic shift’ in capital with more than US$4 trillion flowing into sustainable investments.

The EIP Climate Tech Index tracks public companies involved in decarbonisation, such as Tesla and Plug Power. As you can see in the chart below, after the initial crash in 2020 from the pandemic, the fund has risen way more when compared to the NASDAQ:

Something shifted with the pandemic. While money was already flowing into the transition before the pandemic, the trend has accelerated.

In 2019, investors put US$285 billion into global ESG-focused funds. That number grew to US$542 billion in 2020, and there was a record US$649 billion in 2021.

How to Limit Your Risks While Trading Volatile Stocks. Learn more.

As Fink said, this is just the beginning:

‘This is just the beginning — the tectonic shift towards sustainable investing is still accelerating. Whether it is capital being deployed into new ventures focused on energy innovation, or capital transferring from traditional indexes into more customized portfolios and products, we will see more money in motion.

‘Every company and every industry will be transformed by the transition to a net zero world.

‘I believe the decarbonizing of the global economy is going to create the greatest investment opportunity of our lifetime. It will also leave behind the companies that don’t adapt, regardless of what industry they are in. And just as some companies risk being left behind, so do cities and countries that don’t plan for the future. They risk losing jobs, even as other places gain them. The decarbonization of the economy will be accompanied by enormous job creation for those that engage in the necessary long-term planning.’

I mean, I couldn’t agree more.

This is the investment opportunity of a lifetime. No matter where you stand on the climate change debate, money is pouring into the sector and it is a trend that will play out for decades to come.

As Fink put it:

‘We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients.’

As more countries and companies commit to net zero, more money will flow towards this space. So far, more than 80% of the world’s GDP already has a net-zero target.

And while we’ve been drumming on about the opportunities in lithium, the energy transition will touch plenty of other industries, including transport, construction, recycling, and data collection — to name a few.

To be clear, not every company in this space will be a winner, many will fail.

But as money starts flowing into this space, this will create plenty of opportunities.

And these are the types of opportunities my colleague James Allen and I look for in our service New Energy Investor.

Until next week,

Selva Freigedo,
For Money Morning

PS: Selva is also the Editor of New Energy Investor, a newsletter that looks for opportunities in the energy transition. For information on how to subscribe, click here.