Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 436

Four climate themes offer investors the next big thing

The ability to find the ‘next big thing’ - that is, the next big long-term structural growth trend, before anybody else does - is a key component of investing, especially in global markets.

Identifying and understanding these big technological and structural changes in society are an integral part of our investing process. We call these trends 'Areas of Interest'.

It should come as no surprise, particularly in the wake of COP26, that climate is a major Area of Interest. While many governments continue to drag their feet on de-carbonising their economies, private enterprises see the potential and are acting quickly to develop the technology that consumers are increasingly demanding.

Money is backing into the climate theme  

In 2020, global investment in the transition to low-carbon energy exceeded $US500 billion for the first time ever. Given the ambitious carbon goals now being announced around the world, we forecast the transition to decarbonisation will require an investment of over $US30 trillion between now and 2050.

The below chart shows where we believe the investment opportunities will lie in this transition.

Finding tomorrow’s winners: Climate

Source: Goldman Sachs, Munro Partners Estimates (31st December 2020)

In climate, there are four structural categories that will be outliers in the decarbonisation of the planet.

1. Clean energy

Companies at the forefront of renewable energy generation know clean energy is not just good for the planet, but it is now cheap enough to compete with fossil fuels and is less reliant on government subsidies to succeed.

A focus for us in renewable energy is wind generation. Onshore wind production may receive a lot of media attention, but offshore wind is the faster growing segment in this industry. To highlight the potential in this space, the amount of offshore wind capacity auctioned in 2020 equalled the amount that has been built in the entirety of its existence.

Denmark-listed Orsted commissioned the first offshore windfarm back in 1991. This extensive experience and head start is part of what makes Orsted attractive and what will see it continue to develop as an ‘offshore major’ as the industry matures and despite oil companies entering.

2. Clean transport

Electric vehicles will be an integral part of any future transport strategy, something governments are slowly realising. Currently, less than 1% of Australian cars on the road are electric vehicles but this will grow rapidly as infrastructure, affordability and range are improved.

The problem for investors is identifying which companies are looking outside the box in the move towards clean transport. Battery technology is a critical, but often overlooked, component of this transition.

Korean-listed Samsung SDI is a leader in large energy storage batteries and electric vehicle battery manufacture. Although barely profitable today, with more governments around the world making announcements similar to Australia’s designed to boost electric vehicle uptake, we expect companies producing energy storage batteries to grow and prosper.

3. Energy efficiency

A more efficient energy future includes the best use that energy, for example, through more efficient insulation or metering.

We forecast this category of energy efficiency to account for a quarter of all global decarbonisation spending. Companies in heating, ventilation, and air-conditioning (HVAC), insulation products, electrical switches, lighting and metering technology will offer the best prospects in this category as offices, commercial buildings and households increase focus on their energy ratings. HVAC retrofitting represents a potential $US350 billion investment market.

Another potential tailwind is the role of air quality in reducing the risk of COVID-19 transmission. More companies and buildings are retrofitting existing systems, or installing new ones, that are able to monitor air quality instantaneously.

HVAC Emissions

Source: Bloomberg Finance L.P as at 15 April 2021

Governments are also expected to introduce stricter air quality rules that will mandate the use of these newer technologies in new builds.

US-listed Trane Technologies is a HVAC business that targets sustainability benefits through the increased energy efficiency of their systems. They have spent a decade repositioning their brand to be more sustainable and have pledged to reduce their customer carbon footprint by one gigaton by 2030.

4. Circular economy

Consumers are increasingly aware of the waste their consumption can produce, with supermarkets, for example, reducing their plastic packaging over recent years in response to consumer demand. Councils are labelling general rubbish bins as ‘landfill’ to make their constituents more aware of where their waste ends up, and primary schools are encouraging an awareness of recycling and the global effects of too much waste production from a very young age.

Unfortunately, just 14% of plastic is currently recycled, compared to 60% of paper and up to 90% of steel. We expect this to increase as consumers continue to become more aware of the true cost of the ‘convenience’ of plastics. The ‘true’ cost of the oil and gas required to produce plastics is also expected to rise, and become more understood, which will further increase the demand for plastics recycling.

Norwegian listed Tomra Systems started off manufacturing reverse vending machines for used beverage containers in 1972 and today provides advanced collection and sorting technology that enables the circular economy and helps minimise waste. They estimate this underpenetrated addressable market to be between $US50 and $US80 billion.

The bottom line

Climate-related companies in the four categories outlined above will experience exponential growth over the years and decades to come. This will be driven by increased consumer demand for more climate conscious solutions and by governments, corporations and investors setting ambitious climate reduction targets.

By identifying and investing in these companies at the beginning of a very long S-curves, we can profit from their prescience and deliver those benefits to investors. We have established the Munro Climate Change Leaders Fund to capture this opportunity. 

 

James Tsinidis is a Portfolio Manager and Co-Lead of the Munro Climate Change Leaders Fund. Munro Partners is a specialist investment manager partner of GSFM Funds Management, a sponsor of Firstlinks. Munro Partners may have holdings in the companies mentioned in this article. This information is general in nature and has been prepared without taking account of the objectives, financial situation or needs of individuals.

For more articles and papers from GSFM and partners, click here.

 

  •   1 December 2021
  • 4
  •      
  •   

RELATED ARTICLES

Four ways to capitalise on a forgotten investing megatrend

Aggressive climate targets spell opportunity for investors

Electrification: Paving the road to emissions reduction

banner

Most viewed in recent weeks

Testamentary trusts post-budget: Estate planning, tax reform and the ‘death tax’ debate

Proposed Budget changes to taxation are casting new uncertainty over testamentary trusts, prompting closer scrutiny of estate planning structures and the real implications of reforms still taking shape.

High quality businesses are on sale

Beneath the dominance of the ASX's largest stocks, much of the market has been left behind. High-quality companies are now trading at levels rarely seen, offering opportunities for investors willing to look deeper.

Meg on SMSFs: The CGT changes don’t impact super but what about Div 296 tax decisions?

New CGT rules could tip the scales in the super vs non-super debate. For those facing the Division 296 tax, the case for withdrawing has gotten more complex. A "comparison rate" tool may help assess decisions.

The strange effect of the 30% minimum capital gains tax

The 30% minimum tax on capital gains sits at the heart of the budget's proposed reforms. Yet the mechanics reveal anomalies that introduce unexpected distortions that raise questions about its design.

Ranking three common retirement strategies

The defining challenge of retirement isn't just about building wealth, it's about converting your lifetime savings into sustainable income. A holistic understanding of different strategies can improve long-term outcomes.

Welcome to Firstlinks Edition 667 with weekend update

The downfall of the giant and three lessons for investors.

  • 18 June 2026

Latest Updates

Planning

Does your will qualify for the discretionary testamentary trust exemption?

Treasury has confirmed the exemption many families were hoping for. But buried in the fine print are two conditions that could leave some wills on the wrong side of the exemption, despite years of careful planning.

Lithium's latest drop and what it means for ASX investors

Lithium's latest sell-off has punished ASX miners as prices remain hostage to shifting expectations. The key challenge is navigating a market prone to extreme volatility despite a strong case for the long-term demand outlook.

Investment strategies

CGT reform and fund turnover: who really feels the impact?

The implications of CGT reform are far and wide. As the 50% discount gives way to inflation indexation, turnover and return profiles may become critical drivers of after-tax performance. Some strategies face a far greater hit.

Superannuation

Super was built for a very different Australia

Our retirement system was built around assumptions that no longer hold. Lower homeownership, longer lifespans and changing expectations are exposing cracks that policymakers and super funds need to address.

Retirement

Retirement in reality - 4 months in

Many people spend years planning financially for retirement but little time preparing for what comes next. Four months in, here are the surprising lessons I've learnt on finding purpose, social connection and healthy habits.

Investment strategies

After the Budget, Australia needs its own definition of quality

As tax reforms reshape investment incentives, investors should rethink what quality investing means in the uniquely concentrated Australian market, where traditional frameworks may not translate as effectively.

Datacenters are the new shale oil

Why are tech giants pouring billions into datacentres when the economics look questionable? The most dangerous words in investing may be: "everyone else is doing it". Today's AI boom has striking parallels with the shale bust.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.