Thematic investing: tackling climate change

Equities
Investments

In our latest thematic investment guide, we look at the wider climate change picture.

How to invest in renewable energy & firms tackling climate change

The wider environmental picture

Our previous thematic investing guide to renewable energy flagged some of the companies specifically fighting the green fight through power generation. Climate change is not just about sustainable energy, though. Lots of moving parts comprise the anti-global warming engine.

Worldwide, masses of time and energy is being poured into combatting global warming. In the first few months of his Presidency, Joe Biden has pledged to increase funding into clean energy sources, reduce the US’ carbon footprint, re-enter the US into international climate accords.

The 2016 Paris Climate agreement, where 197 nations pledged to limit warming temperatures, is rightly seen as a watershed moment in the history of global change. But there is still more to be done.

That’s why, while it’s important to continue to invest in renewable energy, other companies are doing important work outside this sector. Electric vehicles, for example, are one way of tackling rising emissions. Less fossil fuel burned to power vehicles should greatly reduce greenhouse gas volumes in the atmosphere.

Q1 2021 EV sales were up 81% in the US. In China, they are up 239%. The likes of Tesla, NIO and Toyota are real pioneers here, pushing either fully electric or hybrid technology to new areas. Legacy carmakers like Renault, Peugeot, Audi, Ford, and VW are pushing ahead with integrating more EVs into their product lines.

We also see big tech firms doing their bit. Amazon, Alphabet and Facebook have all made strong carbon neutrality commitments. For instance, Amazon head honcho Jeff Bezos launched a $10bn climate change fund and committed the e-commerce behemoth to clean up its supply chains. Alphabet and Facebook are looking for renewable sources to power their energy-hungry data centres and have pledged to continue to invest in renewable energy.

Here are some stocks from firms helping to combat climate change that wouldn’t look out of place in a green-themed investment or trading portfolio.

Thematic investing: climate change focussed stocks to watch

NIO

NIO stocks have actually been sliding at the time of writing as part of a wider tech sell-off in response to rising US inflation and bond yields. But there are reasons to be cheerful regarding the Chinese EV manufacturer’s future.

Its Q1 2021 earnings report, released in late April, showed an impressive 19.5% rise in gross margin, beating market estimates, and coming in 3% higher.

Improved sales data shows NIO is on a growth footing too. The company sold 44,000 vehicles in 2020, 108% more than in 2019.

A small unit count initially, especially compared against someone like GM, which sold over 2 million vehicles in the same period, but the growth is the important factor here, not the total number of units sold.

In Q1 2021, NIO had already sold 20,600 vehicles. That’s a 423% increase. The automaker is also launching three new models, including an SUV, this year to gain ground in several market segments.

Factor in estimates that China, already the world’s largest automotive market, is expected 13 million annual EV sales, along with the emergence of China’s middle class, makes NIO an EV stock with plenty of juice left in its batteries.

TPI Composites

TPI Composites is a wind energy stock that is looking positively breezy. The firm produces blades for wind farms and other pieces of equipment for wind farm construction and operation.

TPI notched record revenues in its Q1 report, totalling $405 million. This represented a not insubstantial 13% increase against Q1 2020. The company produced 814 sets (a set has three wind blades) this quarter, which was 11% more than the same period last year.

The firm has spent large sums in the past couple of years to improve its manufacturing output. It now has production facilities in the US, Mexico, China, and India, putting it squarely in regional supply chains. TPI is also now looking to reduce its costs going forward, putting it back on the path to profitability.

In sales terms, TPI’s first-quarter net sales had increased by $48 million to $404 million – a 13.5% increase when compared to net sales of $356 million over the same period in 2020. It also recorded a 12.7% increase in turbine blade sales to $42 million.

Of course, TPI is up against some stiff competition in the form of firms like Vestas, but its combination of higher sales and a commitment to reducing operating costs point toward higher profits moving forward. TPI is one of the wind energy stocks to watch.

Alphabet

As stressed earlier, when you’re looking at thematic investing, don’t just stay within renewable energy stocks or wind energy stocks. Think of the wider picture. Companies that have committed to renewable energy may not be suppliers or producers themselves.

Take Google owner Alphabet for instance. The tech giant has long been praised for its sustainability commitments. By 2020, Alphabet claimed it was running on 100% renewable energy. Its data centres are some of the most water-efficient in the world, using 80% less H20 than the typical centre. Alphabet has plans to build more.

Alphabet’s earnings beat estimates in the first quarter of 2021. Revenues grew 34%. YouTube ad revenue was up 50% year-on-year. Earnings per share came in at $26.29 per share against the expected $15.82.

Alphabet’s core business is not related directly to clean power generation. However, it’s a good example of a major corporation with a proven track record of delivering on its emissions-cutting promises. Therefore, it would not be out of place alongside other more-focussed stocks in a climate change combatting portfolio.

Remember the risks of investing in renewable energy & climate change stocks

Whether investing in wind energy stocks, renewable energy, or companies working to fight global warming in general, remember the basic risks. Investing and trading are both inherently risky. Only invest or trade if you can afford to take any potential losses.