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Retirement Weekly: Investing in a green recovery

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In many ways, it’s difficult to feel optimistic about 2022 given the conflict in Europe, soaring inflation and sky-high prices at the gas pump. Add in the lingering effects of a global pandemic and a proliferation of floods, earthquakes, fires, storms and other natural disasters, many people are yearning for a return to “normal.”

But “normal” isn’t ever going to look like it used to. COVID-19 will be a part of our daily lives in some form or another for the foreseeable future, and thanks to climate change, so will these natural disasters.

Though accepting this kind of sweeping change is hard, we’ve seen how change can create great opportunity. That’s certainly the case with the challenges we face today.

The pandemic has revealed a lot about our support systems and all the storms we have weathered, literally and figuratively. Meanwhile, increased forest fires, flash floods, economic unrest and adverse impacts that relate to climate change have shown us the importance of taking care of our ecosystems to keep them sustainable for years to come.

It will take investment within our social, natural, and financial systems to recover and become more resilient in the future. Investments in health care, clean energy, financial systems, urban centers, and the food and agricultural industries, to help improve and combat the volatile issues we have faced, will also be needed.

All of this, we believe, will usher in a green recovery.

According to experts at Yale Sustainability, a green recovery would boost global economies through investments in technology and other solutions that reduce our greenhouse gas emissions (GHG), create jobs, increase the resilience of infrastructure and communities, and prioritize equity and equality.

A green recovery would represent an ongoing effort, not a one-time event or single action. Achieving ambitious results and advancing a wide range of initiatives will require a commitment from governments, policies, investment, academic projects, and more.

But if ever there was time and support for such sweeping action, it’s now.

A forward-looking, truly innovative approach

We believe there are two key areas that markets need to focus on to drive this era of greener, more robust growth.

First, we must embrace new approaches to innovation. As we look to the future, we can’t simply invest in solutions of the past. Instead, innovation and technology will play critical roles in creating forward-looking solutions for a more sustainable global economy.

Second, as we take a global perspective, we must include analysis of geopolitical strife. The Ukraine/Russia conflict highlights U.S. dependence on fossil fuels and in turn, the countries that control these resources. The reliance of the U.S. and other countries on Russian oil has left us vulnerable to commodity price spikes, which is another reason to focus on green solutions. 

That’s where the field of sustainable technology comes into play.

There is already significant investment into technologies that alleviate the threats to sustainability of the global economy. We call the technologies that help tackle these threats to sustainability “SusTech” – sustainability through technology. SusTech refers to environmentally friendly technologies that aim to reduce GHG emissions by helping companies in a variety of industries make an energy transition from fossil fuels to renewables.

While there are several types of sustainable technology, we see opportunity in Green Tech, AgriTech, FoodTech and Smart Cities. GreenTech opportunities include electric vehicles, hydrogen, wind farms and solar power. AgriTech and FoodTech industries continue to adapt to meet the widespread challenge of feeding a growing global population while limiting the burden on the environment, including precision farming, supply chain efficiencies, and shelf life enhancements. Lastly, Smart Cities promote urban sustainability, allowing cities to improve productivity and reduce costs. New technologies such as sensors to monitor buildings’ heating and lighting enable high-tech solutions that make cities more efficient as urbanization rates continue to climb.

Credit: RBC

The other focus for markets should be on forward-looking policy, public infrastructure and blended finance for climate action.

We believe that capital can be a positive force for change as it helps to finance or refinance a portfolio of assets across renewable energy, green buildings, sustainable land use, and clean transportation projects.

Take for example green bonds, which are capital-raising instruments issued to finance projects with positive environmental impacts. The funding from green bonds can be used for a variety of projects focused on advancing sustainability efforts. Examples of projects that could be supported by green bonds include, among others, building vertical farming facilities; constructing new green, energy-efficient buildings; developing new technologies to generate clean, renewable power; expanding the infrastructure supporting clean transportation;) minimizing the impact of traditional farming, fisheries, and forestry through sustainable land use.

More sustainable products and services also provide opportunities for businesses and their investors. As companies look to the future, there is an increased focus on their carbon footprint and environmental impacts. Forward looking companies are going to identify these risks and opportunities and introduce new products and services to reduce their own emissions, as well as those of their customers. Investors who utilize an ESG integrated strategy can invest in these companies long term and participate in this market transition.

How investors can participate

Investors can easily take part in the green recovery. Innovative and sustainable technologies, like SusTech, represent an opportunity toward accelerating clean economic growth and the transition to the net-zero economy. Those technologies will require financial backing, not just today, but well into the future.

New solutions will proliferate in the months and years to come, as well as opportunities to deploy existing technologies into new infrastructure projects.

With urban populations rising and a push toward electrification of traditionally fossil fuel powered amenities, there will be added stress on America’s infrastructure systems over the next 20 years which may lead to a growing need to finance middle market infrastructure development. These projects can convert methane from wastewater or organic waste into useful natural gas, mitigate renewable power intermittency issues though energy storage or enhanced grid efficiency, and deploy rooftop or utility scale solar developments. Once completed these projects generate an attractive long-term cash flow profile for buyers in search of yielding assets.

We’re willing to wager that there will be many, many other new environmental and impact oriented funds popping up moving forward. With all that opportunity on the horizon, savvy investors are wise not to mourn the loss of what was and instead focus on all the prospects that lay before them.

Kent McClanahan is vice president of responsible investing, RBC Wealth Management—U.S.  

Like any type of investing, ESG and responsible investing involves risks, including possible loss of principal. RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member FINRA/NYSE/SIPC. 

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