Mar 11, 2020

"Climate protection will be an investment theme for decades to come"

Turning climate change into an investment opportunity: that’s fund manager Tim Bachmann’s goal with the DWS Invest ESG Climate Tech fund. His strategy rests on businesses and politicians coming together to effect change.

  • The DWS Invest ESG Climate Tech fund invests globally in companies with solutions that counteract climate change or mitigate its effects.
  • Every third euro the fund invests contributes to the UN sustainability goals and thus to climate protection.*
  • Even if the goal of climate neutrality is achieved by 2050, climate change will remain a promising investment theme.
5 minutes to read

"Sea levels will rise; the only remaining question is: by how much? "

Tim Bachmann, Technology analyst and fund manager for DWS Global Small/Mid Cap and DWS Invest ESG Climate Tech

Tim, your goal is to turn climate change into a return opportunity with the DWS Invest ESG Climate Tech fund. Why is this strategy working, when global warming poses so many risks for companies?

For one thing, politicians are creating the right framework for boosting global investment in climate protection with agreements such as the Paris Climate Pact. Companies also have the resources and innovative power to provide the necessary technology. There are many examples of this interplay working successfully, including the development of alternative vehicle drive systems, powerful wind turbines and photovoltaic systems. Such companies turn climate change from a risk into a return opportunity for investors.

Can you give investors some idea of how much companies must invest to benefit from the emerging climate protection market?

Yes, we can put a rough figure on that. To meet the Paris Agreement’s climate targets, the global energy sector will have to invest 3,000 billion dollars annually between now and 2040 - a sum roughly equivalent to France's annual GDP. Entire heating and electricity systems will also have to be converted from fossil fuels to renewable energy.[1] We need smart electricity grids, modern geothermal, wind and solar power plants, and hydrogen technology to store excess electricity. We’ll also need to invest heavily in cushioning the damage that has already occurred or can no longer be avoided. Sea levels will rise; the only remaining question is: by how much? That means we need flood protection. Additional annual investment in the mid hundreds of billions range is needed for these kinds of measures, which make life with irreversible climate damage possible.[1] We are talking about shifting huge amounts of capital

So, it’s one thing to convert entire economies to being more climate-friendly and another to make it possible for us to live with climate damage that has already occurred?

That's the way it is - and those are the two themes DWS Invest ESG Climate Tech covers. When it comes to mitigating climate change, the main issue is decarbonising the energy mix - in other words, moving gradually away from fossil fuels. We therefore invest in, for example, renewable energy producers, developers of automotive electronics, battery materials and hydrogen tanks, as well as companies that manufacture energy-efficient equipment for industrial and household use. We’re also interested in electricity transmission network operators and manufacturers of insulating materials for energy-related refurbishment in the real-estate sector.

Solutions that help us to live with the consequences of climate change are found, for example, among property insurers and companies in the healthcare, water, agricultural and disaster control sectors. We need new technologies in these industries too. It falls to the pharmaceutical industry, for example, to develop drugs that counteract new disease patterns. Farmers must conserve more resources. As water is becoming a precious raw material, we invest in, for example, water treatment and desalination equipment manufacturers.

Your fund carries an ESG label. Does that mean that stock selection is not just about climate protection but also about social issues and corporate governance?

Yes, we start with the full universe of stocks. We then apply a thematic selection filter and check which companies can attribute a significant share of their turnover to a key climate change solution. We then check that the companies also meet our minimum ESG standards, meaning that they have a good rating in the three sustainability criteria of environmental, social and corporate governance. You could say that the ecological component is checked twice. If a company has a good solution in the fight against climate change but can only offer it with unacceptably high CO2 emissions, it is not considered for the fund. Last but not least, we also check whether securities are liquid, that is to say easily tradable on the market. We do fundamental analysis too, examining whether companies’ business development is sound. The result is a diversified portfolio of companies that are ESG pioneers - relative to their peer group - and can benefit from the enormous need for investment that climate change is bringing.

Tim Bachmann

Technology analyst and fund manager for DWS Global Small/Mid Cap and DWS Invest ESG Climate Tech

"About every third euro invested through DWS Invest ESG Climate Tech makes a mathematical contribution to the UN sustainability goals."

Tim Bachmann, Technology analyst and fund manager for DWS Global Small/Mid Cap and DWS Invest ESG Climate Tech

The younger generation is particularly environmentally conscious - 'Fridays for Future' is an example of that. Is DWS Invest ESG Climate Tech a great fund for millennials?

About every third euro invested through this fund makes a mathematical contribution to the UN sustainability goals, including climate protection. This means that DWS Invest ESG Climate Tech is aimed at all investors who want to make a difference. Younger investors are definitely part of our core target group. However, combining a classic risk/return approach to equity investing with sustainable investment criteria, as we do in this fund, is becoming increasingly important for the older generation as well, as surveys have shown.

As a fund manager, what do you see as the key technologies in the fight against climate change?

I’m very positive about renewable energy - wind, solar and geothermal energy. Even without subsidies, they can now compete with new nuclear and gas-fired power plants. Precision farming is another area. Using software and artificial intelligence to manage arable land efficiently doesn’t just conserve resources; it is also good for yield. And then, there is, of course, the big issue of e-mobility, although I personally don't believe that we will only have electric vehicles in the future. I’m more of the view that a combination of different drive systems will prevail: hybrid, combustion, fuel cell and electric vehicles. I think the theme of hydrogen has particularly great potential here. That type of drive might well make economic sense in a few years' time - although it is more suitable for heavy-duty traffic.

Do you know how big your own CO2 footprint is?

Yes, I certainly do. It’s about 30 tonnes per year, which is still too high. The Federal Environment Agency has a good web site that lets you add up the factors applicable to your individual lifestyle. These include meat consumption, visits to events and flights. Because a lot of the travel I do is work-related, I should be able to get some credits. This is because DWS’s parent company, Deutsche Bank, buys certificates to offset company flights in a climate-friendly way. But this doesn’t give me an alibi not to turn the other CO2 screws - for example by consuming food that is produced in a way that creates less CO2 pollution and by cycling more instead of taking my car.

You could also invest in DWS Invest ESG Climate Tech.

I do in fact already have a private stake in the fund.

Your fund’s other core element is technology. Does that spill over into your private life as well?

It's rather the other way around. I have always been a technology enthusiast and I think it's great to be able to use my understanding of new technological solutions professionally as a fund manager and analyst.

Do you think that climate change will still be an important investment topic when you retire in a few decades’ time?

I am convinced it will be, especially as we won’t decelerate once the goal of climate neutrality has been achieved. There are already pilot projects in place that allow us to move to "CO2 negativity" - meaning that we remove CO2 from the atmosphere. This could also offer investors return opportunities in the future.

Performance in the past 12-month periods ESG Climate Tech LD

Period

Net

Gross

27/02/19 – 27/02/20

15.38%

15.38%

01/10/18 – 27/02/20

-5.86%

-1.92%

Past performance, [actual or simulated], is not a reliable indication of future performance.[2]

As of: End of febuary 2020; Source: DWS International GmbH

Risk information DWS Invest ESG Climate Tech LD

  1. Market-, industry- and company-related price losses
  2. Exchange rate fluctuations
  3. The unit value may fall below the purchase price at which the customer acquired the unit
  4. Due to its composition / the techniques used by the fund management, the investment fund has a significantly increased volatility, i.e. the unit prices may be subject to considerable downward or upward fluctuations even within short periods of time

Key Data DWS Invest ESG Climate Tech LD

  • - ISIN: LU1863264153
  • - Category: Equity funds
  • - Currency: Euro
  • - Fund assets: EUR 110.19 million
  • - Issue surcharge: 5.00%
  • - Flat rate: 1.500%

*Source: DWS International GmbH, Status 02/2020

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1. Sources: We Mean Business Coalition; Ceres Investor Network on Climate Risk and Sustainability; Bloomberg New Energy Finance Clean Energy Investment 2016 and 2017; Renewable Energy Policy Network (REN21) Renewables 2017 Global Status Report. Forecasts are based on assumptions, estimates, opinions and hypothetical models or analysis that may prove to be incorrect.

2. The gross value development (BVI method) takes into account all costs incurred at fund level (e.g. management fee), the net value development additionally includes the front-end load; other costs may be incurred at investor level (e.g. custody account costs), which are not included in the presentation.

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