Green Capex is emerging as a powerful secular growth theme for investors as greater capital is required to meet net zero, clean water and infrastructure mandates. Within the theme, a mosaic of key technologies and impacted sectors exist, including ‘Greenablers’ - companies operating in what we describe as building block sectors where increased reinvestment will be needed. Below we discuss the scope of Green Capex, funding requirements and where we see long-term investment opportunities.
The amount of capital committed net zero targets is accelerating rapidly and is indicative of where we're going at a country, corporate and consumer level. How does this impact capital? Those capital allocators being asked to undertake massive infrastructure projects with long duration are going to need to be incentivized with attractive and more importantly, durable returns. Many corporates and sectors are still very early in starting their net zero journeys and if they are successful over time, which we expect many will be, the alpha opportunities for investors look sizable. Ultimately, we expect Green Capex to be the dominant driver of global infrastructure over the next decade and a stock-impacting investment theme for both sustainability fund managers and generalist investors.
We believe the building blocks needed to execute on UN Sustainable Development Goals (SDGs) alone will require investment with long lead times (2-12 years) to avoid bottlenecks and delays. While there has been much focus on Green Capex for final products such as residential solar expansion, offshore wind farms, and electric vehicles — there has only recently begun to be a focus on the building blocks needed to ensure execution to achieve key SDGs. We view the products and companies operating in these areas as ‘Greenablers’ (Green Enablers). Examples include semiconductors (which improve efficiencies of end-products), copper (the commodity has a direct role in the production of batteries and renewables) electricity transmission lines (critical for successful renewables expansion). We also believe cybersecurity will play a more important role in automation and related energy efficiency gains.