Investing in the next generation of environmental tech breakthroughs

• Cutting-edge environmental technologies are here: Mounting breakthroughs from electric vehicles to carbon capture combined with increasing demand and affordability are helping drive growth for environmental technologies.
• Public and private actions towards carbon reduction: Over $1.3 trillion USD has been allocated by governments towards clean energy investment support since 2023. While over 9000 corporations signed up for the race to zero campaign, which prioritizes cutting global emissions in half by 2030.^1,2
• Early-stage technologies are driving innovation: We believe investors may benefit from exposure to ETFs designed to invest in a broad basket of nascent environmental technologies such as pollution reduction, energy efficiency, and breakthroughs in transportation and power.

We see three key reasons why next-generation environmental technologies will be increasingly important in our economy:

First, governments and companies around the globe have made ambitious climate commitments to reduce emissions, and have passed legislation such as the Inflation Reduction Act which designated nearly $400B towards clean energy technologies and electric vehicles.³ Countries representing nearly 90% of the world economy now have net-zero commitments.⁴ The private sector has also made commitments, with over 37% of the world’s largest publicly traded companies announcing carbon reduction targets.⁵ However, the private sector is not just making commitments, they are also following through with their wallet. For example, in 2023, climate-tech companies raised over $50 billion in venture capital and private equity funding.⁶ Companies know that meeting these commitments requires leveraging environmental technology breakthroughs across areas such as green transportation, renewable energy and energy efficiency, which have the potential to significantly offset the growth of greenhouse gas emissions.

Second, the shift toward renewable energy has accelerated in some markets amidst a global focus on energy security. For example, Germany announced plans to accelerate their transition to renewables, bringing forward their target for 100% renewable power by 15 years, to 2035.⁷ New government policies around the globe will lead to annual clean energy investments of more than $2 trillion by 2030, a 50% increase from today’s levels.⁸

Finally, consumers are reporting increased interest in sustainable products. Whether its buying electric vehicles, installing cutting-edge solar panels on their roof or installing smart meter technologies in their home to reduce energy usage, consumers may continue to turn towards environmentally friendly technologies and products.

If investors are looking to gain access to environmental technologies, they may want to consider focusing on companies whose products and services are in the early stages of adoption. Later-stage products and companies are typically larger and more mature, and already found in broad equity benchmarks such as the S&P 500.

For example, rewinding the clock to 2010, when renewable energy’s share of US electricity generation was 10%. Fast forward 10 years and renewable’s share doubled to 20%.⁹ During this timeframe the S&P Global Clean Energy Index outperformed the S&P 500 energy index by 74%!¹⁰ We believe accessing environmental technology companies ahead of their acceleration in adoption could benefit investors, as the transition becomes more fully priced.

Below we highlight eight themes that could shape the future of environmental technologies,¹¹ whose potential opportunity may be significant. Click into each of these themes to learn more.