Lucre needn’t be filthy

At times like this I believe you have to look to the future and that is what I intend to do this month.

Last February, when all we had to worry about was increasing tensions between the US and North Korea, and whether we would have food on the shelves post-Brexit, a period I call “the good old days,” I wrote a piece suggesting that electric car sales would overtake petrol in five years.  Little did I know that such a statement would generate the response it did from some clients and also some of my colleagues.  It appears the internal combustion engine is a topic to be avoided, like politics, religion, and football when in earshot of a Hearts fan.

Hopefully highlighting that electric vehicle (EV) sales in the UK increased by 161% in the first four months of 2020 compared to the same period in 2019 will not trigger another wave of vitriol from the petrol heads.  It is just a fact, as is the government’s goal to ban the sale of petrol and diesel cars by 2035.  It has been suggested that this goal is fanciful but as I will go on to explain I think it is even more likely to be reality, than it was at the start of the year, thanks to Covid-19.

The fact is there is likely to be a huge jump in unemployment once the furlough scheme ends.  Getting people back to work will be the main motivation behind government policy and infrastructure spending will be a key component.  Had the virus not arrived it is highly unlikely the government would have considered spending anything like as much and it would have taken years to build the infrastructure we need for this “green new world.”

Although there has been no announcement as of yet, a good starting place would be ensuring there is a network of charging points in place sufficient to accommodate the growth in EVs that they want and anticipate.  Most people say that lack of charging points is a deterrent to buying an EV, but I think McDonald’s announcement that it plans to put rapid charging points in each of their drive-thru restaurants will only be the start.  Whether it will do much for the nation’s waistlines is another matter.  

The electricity we use is also far cleaner than it has ever been and the UK has now gone over two months without generating electricity from coal powered plants which suggests we are well on our way to the goal of having no coal powered electricity in the grid by 2024.  The percentage of renewable energy generated continues to grow and is starting to make inroads to the amount of electricity from gas powered plants.  It would seem sensible for the government to initiate projects that will accelerate this in the coming years.

The cars themselves are coming down in price and the batteries are already getting better range between charges.  The announcement a few weeks ago that the company that makes batteries for Tesla and VW have produced a battery that will have a lifespan of 16 years and a 1,200,000 miles warranty is also a game changer.

So what has the green utopia I have suggested got to do with investment? 

Well I do not believe that all of these initiatives will come from governments and as McDonald’s have shown, the private sector is also likely to be a major contributor towards our greener future.  For companies, making a decision such as this ticks a lot of boxes not least emphasising their environmental credentials in their annual report which is becoming more and more important to investors.  For example McDonald’s also run half of their lorries on the waste oil from their premises, a good example of sustainability.

In the last few years it has become increasingly important to investors that the companies they own operate morally.  In the industry we call this ESG (Environmental, Social and Governance) and like other parts of our lives I believe the importance of this has accelerated over the last few months.  As one fund manager explained it is the difference between investing in companies that try to cure cancer rather than cause it or those that improve the environment rather than destroy it.

It is an area that has gone from being niche to mainstream with every fund manager including those that do not manage with an environmental mandate being very conscious of how their portfolios stack up.  Why?  It comes down to investment returns.  It is likely the companies that will benefit most from the upcoming government spending bonanza will be those that not only provide the goods and services they require, but also have the best ESG credentials.

As for Tesla, it is exactly ten years since shares in the company went public.  Somebody that had the foresight to invest $10,000 at that time would now be holding shares worth over $580,000.  A very happy tenth birthday indeed!