What were the highlights of the year?
There were a number of highlights, not least the return of investor confidence in some environmental markets such as renewable energy technologies that had underperformed in recent years. During that time we have had very little exposure in our funds, despite their significance within the portion of the market applicable to our investment themes. But last year we selectively increased this exposure, having identified some companies that are emerging on a far more stable footing. This includes the technology itself, and its ability to compete with 'conventional' sources of energy without need for subsidy support. Companies such as these have performed strongly during the year on the back of stabilising prices and better cost controls.
Elsewhere, consumer concerns about food provenance served some of our largest investments in organic and natural food companies very well and added momentum to the sector's long-term, structural growth in market share that we have seen even through the recession, when many observers expected precisely the opposite.
What were the lowlights of the year?
CT: 2013 was a mixed bag in terms of carbon-related legislation at a national level. We saw some positive news such as a tightening of the European Emissions Trading System and China launching its own pilot trading schemes.
But a lowlight was the speed with which the new Australian administration sought to remove its own carbon pricing measures.
Similarly, Japan's government rolled back on its own carbon targets dramatically, though clearly the context was very much affected by the closure of its nuclear power plants in the wake of the crisis at Fukushima.
What was the most surprising development?
We have been surprised by the strong performance in the share price of Tesla Motors, the high-performance electric car company. Its share price surged in the region of 500% in the 12 months to October 2013, sending its market capitalisation from under $4 billion to $23 billion, making it one of the largest environmental technology companies globally by market cap.
However, the company is expected to sell 21,000 cars this year. While we would certainly welcome a rapid take up of electric cars, in my view the stock market is perhaps overestimating Tesla's ability to compete with the mainstream. We have seen some retracement in the stock's price since but it remains expensive in my view.
Are we in a better place in terms of climate change at the end of 2013, compared with a year earlier?
I think we are, though moderately, for two main reasons.
1) Despite slow progress in global negotiations, September saw the long-anticipated release of the Intergovernmental Panel on Climate Change's (IPCC) latest scientific assessment of climate change. It was a landmark report which for the first time made the resounding conclusion that 'it is extremely likely that human influence has been the dominant cause of the observed warming since the mid-20th century.' This could prove to be an important step in the climate change debate even if we are mindful that momentum in the global policy space has built up before only to disappoint.
2) More important, perhaps, was the establishment of the US-China Climate Change Working Group in April. We expect this to provide a useful framework for cooperation outside of the UN negotiations but also prove beneficial to global negotiations as a whole. Together the US and China account for more than 40% of global carbon emissions, and both currently use environmental regulation as the tool of choice for dealing with emissions.
What are the key events in your diary that are set to shape 2014?
The EU's draft 2030 climate and energy strategy is expected this month, with a decision coming in March. With this key decision coming only two months before the Parliamentary elections in May, this decision marks a genuine test of the EU's historic leadership on climate change policy.
Elsewhere, I last visited China in April and experienced how poor the air quality has become in major cities. The government's response through 2013 appeared hard-line, including the announcement that new build coal power stations were for the first time banned in the most important metropolitan areas around Beijing, Shanghai, and Guangzhou. It is not so much an event, but whether policy statements such as this have set the tone for hardline action should become clear through this year.
What will be the key debate on climate change/environmental finance in 2014?
2013 ended with Supertyphoon Haiyan devastating the Philippines in the run up to the climate talks in Warsaw. Against this backdrop an agreement was reached to form a new committee to look at what is being called the 'loss and damage' agenda – in effect whether industrialised nations should compensate developing countries for damage stemming from the effects of climate change, and by how much. But this was arguably a soft compromise in an ongoing debate that may be fuelled by the IPCC's report on 'Impacts, Adaptation and Vulnerability' due in March, the second of three parts to its Fifth Assessment Report.
If emissions reduction pledges by industrialised nations are limited as we head into further climate talks, the issue of compensation payments will likely come back to the forefront of global debates on climate debate.
There are hopes of progress on climate change in 2014. But what will be the ramifications if next year doesn't shape up as hoped?
We would argue that investment markets don't anticipate a breakthrough towards a global climate change deal in 2014, so the downsides are fairly limited from an investment perspective.
Instead, we recognise that the environmental sector has experienced something of a revolution in recent years. The investment drivers of favourable policies and regulations have largely given way to a focus on robust businesses able to compete with mainstream counterparts on a more equal footing.
Any sectors that will become more attractive to investors/corporates in the environmental space in 2014? Any prediction on trends in markets/sectors relevant to you?
Energy efficiency solutions represent around one-fifth of the Jupiter Ecology fund, and we're optimistic that corporations across many sectors will continue to see energy efficiency measures as a way of keeping costs down. For example, there is far greater acceptance of technologies such as light emitting diodes as the technology has matured, and this should provide opportunities for environmental investors.
