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Where to look for investment opportunities in European equities

After decades as an underperformer among equity markets in the developed world, investing in Europe is once again looking attractive, says Pendal’s Paul Wild.

  • Carbon-neutral push is moving the spotlight to Europe
  • Major government spending on green initiatives is attractive
  • Green Party likely to do well in September German election

EUROPE’S green credentials are well known, but a recent acceleration in the push to become a carbon-neutral continent in the next few decades has opened up investment opportunities.

“It’s irrefutably the largest and most important structural theme that Europe is exposed to,” says Paul Wild, a senior fund manager at Pendal Group’s London-based subsidiary J O Hambro Capital Management.

“Europe has the world’s largest renewable electricity players. On the industrial side, it has leadership in terms of buildings efficiency. Europe leads the way in terms of passenger vehicle technology. So, as well as being politically motivated, Europe is highly exposed to green business initiatives.

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“It is one of the few areas that Europe can claim global leadership,” Wild says.

Europe’s evolution as a leader in sustainability has come relatively recently, notwithstanding parts of the continent have a long history in looking after the planet.

In December 2018, the European Union adopted the Green Deal which intended to map out the continent’s strategy to become climate neutral.  Fiscal spending was biased towards green initiative such as efficient buildings, clean water, biodiversity, more public transport and recycling.

Then in the middle of last month, the EU set itself a binding target of achieving climate neutrality by 2050, subject to individual parliaments ratifying the decision. As an intermediate step, the EU has raised its climate ambition to cut emissions by at least 55 per cent from 1990 levels, by 2030.

“Currently the European Union generates about 12 per cent of its energy from renewables but it’s targeting 40 per cent by 2030. That’s a big number,” Wild says. “Clearly Europe is serious.”

Where opportunities lie

“It involves everything from overhauling the carbon emissions trading system and introducing a carbon border adjustment mechanism for imports, through to a huge rollout of electric vehicle charging stations.”

“There’s opportunities around aviation fuel. The EU has a target of renovating 3 per cent of public buildings a year to make them more efficient. There are many opportunities,” Wild says.

The weight of state money going towards green initiatives is huge.

“It’s irrefutably the largest, most important, most structurally backed theme that Europe is exposed to,” Wild says.

“The region already has some of the world’s largest renewable utilities companies, best building efficiency plays, the largest wastewater recycling companies, expertise in the paper and pulp sector, and outside China, the biggest wind turbine manufacturing companies.

“The theme is politically motivated. There’s political impetus for change and laws are coming to bear forcing companies to be more green-aware. It has become an area where Europe is showing global leadership,” Wild says.

“And it’s likely to continue. The Green Party is likely to do well in the September German election. There is clearly a social awareness that is putting political pressure on countries.”

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This article has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and the information contained within is current as at August 11, 2021. It is not to be published, or otherwise made available to any person other than the party to whom it is provided.

This article is for general information purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation.

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