- Demand for energy-efficient products is expected to grow by 7%-8% annually.
- This offers an investment opportunity that could lead to profits while also helping the planet.
- Find out more in the UBS Chief Investment Office (CIO) report: Longer Term Investments—Energy efficiency
Energy efficiency is a highly visible area of sustainable investing, and a wide range of companies is working on reducing their energy impact on the planet. From renewable power generation to improved energy efficiency in transportation, appliances and other energy applications, energy efficiency may be an ideal complement to a sustainable investing portfolio.
Opportunities in energy efficiency
Between regulations and consumer demand, investments in energy efficient products may yield great results. The International Energy Agency (IEA) expects the demand for energy-efficient products to grow by 7%-8% annually. This offers a market opportunity that could lead to profits, while also helping the planet.
Laura Kane, Head of Investment Themes Americas for UBS, explains that builders, industrial processes and information technology are major energy users, and these industries invest heavily in improving energy efficiency. Investments in efficiency also come from the utilities and transportation industries.
"Increasing populations, urbanization and rising wealth are causing demand for energy to grow," says Kane. Adding efficiencies to offset the costs of those demands offers opportunities for business success, and potentially profitable investments.
Energy sustainability goes beyond US markets
We believe there could be substantial opportunities on the horizon in emerging markets. These markets, which tend to offer higher economic growth rates than developed economies, also grapple with growing energy demand. But that isn't stopping them from simultaneously working to improve efficiency.
According to the CIO report Longer Term investments—Energy efficiency, "the BRIC nations—Brazil, Russia, India and China—are also targeting CO2 emissions reduction and energy efficiency improvement. In China, for example, CO2 intensity per unit of GDP is to be reduced 60%–65% from 2005 to 2030."
A well-performing sustainable portfolio may include investments from around the world, including investments in businesses with a focus on improving emerging market energy sustainability. The potential investment gains from BRIC nations are just one example of how emerging market sustainability investments may lead to above-market-average returns.
Don't forget renewable power generation
Large utilities invest in wind, solar and hydro projects to diversify energy sources, lower input costs and meet customer demand for renewable energy. For example, Xcel Energy in Colorado is accelerating plans to replace two coal power plants with renewables for a consumer savings of USD 213 million over the next 35 years.1 Local and state governments also press energy companies to meet ever stricter regulations on emissions and waste.
Batteries and energy storage also offer interesting investment potential. Traditionally, utilities supply electricity from large power plants and generation systems through transmission networks to the ultimate customer. Storing energy with improved efficiency can help alleviate peak demand costs.
"The 'upgrade' of the conventional grid to a 'smart grid' allows the usage of decentralized, smaller electricity generation resources, e.g. solar panels and energy storage (electric cars)," the CIO. "Energy efficiency" report explains. If less energy is lost, more value can be captured. "One way to do that is with a smart grid," adds Kane. "These re-allocate supply based on demand in real time."
Energy investments can energize a sustainable portfolio
While fossil fuels have offered big returns for investors for many years, a shift to sustainable attitudes around the world makes energy efficiency an exciting and profitable place to put your funds, and an opportunity to feel good about your investments.
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