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Kepler Trust Intelligence
Updated 14 Jul 2021
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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Jupiter Green. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

As governments around the world look to gradually ‘unlock’ their economies, attention is turning to the long-term recovery from the impact of successive pandemic related lockdowns.

Increasingly, it is becoming clear that sustainability will be a crucial part of that recovery; or, as Jon Wallace, manager of the £53m Jupiter Green Investment Trust puts it, the recovery will have a “green tinge”.

Following the G7 summit hosted by the UK Government in June, the communique released by the seven attending nations explicitly stated that “protect our planet” was one of their five key agenda items for the year ahead. Later on this year, representatives from over 200 countries will gather at COP26, the UN’s Climate Change Conference in Glasgow, to discuss the continued implementation of the Paris Agreement – with the opportunity to incorporate carbon reduction into post-pandemic plans likely to be a key agenda item.

A giant leap for green technology

Such a strongly supportive macroeconomic and policy environment presents an exciting opportunity for managers with a sustainability focus, such as Jon. In particular, the renewed drive towards achieving net zero by 2050 – and the post-pandemic investment that will make this a more realistic target – provides a much more supportive environment for businesses at the highly-innovative end of the environmental technology spectrum.

For some industries, such as steel, it is nigh on impossible to reduce their climate impact incrementally. As such, these industries will require wholesale innovation of their processes in order to meet their sustainability targets, whilst not compromising on quality.

The nascent technologies that have been developed to address this need typically lie outside the traditional industry players. The automotive industry is an early example of this; chip, cable and battery technologies, which are crucial to the successful operation of electric vehicles, have been developed more often by traditional technology players than by car companies. Meanwhile, the world’s leading electric car producer Tesla is a relatively new operator in the market.

Small is sustainable

This dynamic, coupled with the political and fiscal support for businesses driving the sustainability transition forward, has prompted Jon to rotate the JGC portfolio towards the kinds of smaller companies that are pioneering green technologies. He has increased the portfolio allocation to this end of the market from 46% to 64% over the last twelve months, including using the trust’s ability to deploy up to 5% of its capital in private companies.

The trust’s size is a strength when it comes to tapping into this opportunity set, with it able to build meaningful positions in companies at an earlier stage in their growth.

One such company is the £400m market cap Hoffmann Green Cement. Cement is one of the most carbon intensive industries that clearly requires a single, sizable technological shift to decarbonise effectively. A key element of traditional cement production is ‘clinker’, a highly carbon intensive production process. Hoffmann Green has innovated a process which eliminates the need for clinker, and therefore significantly reduces the emissions of cement production.

With two-thirds of carbon emissions coming from countries with a c. 2050 net zero target (and these countries making up four-fifths of global GDP), decarbonisation is clearly one of the policy priorities with the most meaningful political impetus behind it. As such, companies like Hoffmann Green are poised to benefit from a supportive context both financially and in policy terms.

Cleaner chemicals

Of course, it’s not just the smaller companies that benefit from the post-pandemic political impetus to invest in sustainability or that provide innovative solutions to sustainability challenges. Any business working on sustainable solutions is likely to benefit from the current macroeconomic context.

For example, Jupiter Green holding Borregaard is a leader in producing more sustainable biochemicals and biomaterials that replace oil-based products. One of its leading products is its vanilla flavouring, which is the first industrially scalable, naturally sourced product of its type, with over 90% of the market currently using far less sustainable synthetic flavourings.

Given the broader drive towards sustainability, it is not unreasonable to anticipate that products like these could become the standard in the coming years and decades as we rely on environmental solutions technology to meet our carbon reduction goals.

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