Sustainable Thematic Funds and Long-Term Investment Returns TBLI Conference Europe 2008 Steven Falci, CFA Vice President S...
Environmental Issues on the Agenda
Sustainable Thematic Funds Agribusiness Renewable Energy Water Climate Change
Global Mega Trends- Sustainability Imperatives <ul><li>Population Growth/ Industrialisation/ GDP Growth </li></ul><ul><li>...
Sources of Long-Term Return <ul><li>Sustainable Themes   Sustainability Solutions </li></ul><ul><li>Sustainable Strategic ...
Alternative Energy: the central issues Fossil Sources Renewable Energy Long-Term Supply  Constraints Security of Fuel Supp...
Investment Driver: Current Market Share <ul><li>Renewable Energy </li></ul><ul><ul><li>•   Wind </li></ul></ul><ul><ul><li...
Investment Driver: Falling Renewable Energy Costs Source: United Nations Economic and Social Council Source: EIA, American...
What Do We Mean By  Investing In Water? Stage 4   Secondary disinfection  treatment prior to  discharge into the  environm...
Investment Driver   Water Demand Sources: US Census Bureau / German Ministry of Environment Economic Growth Population Gro...
Global Supply versus Demand for Water Source: UNESCO
2006 Projected Capital Expenditure Projected expenditure on water infrastructure, 2006 Source: OECD, IMF, Credit Suisse es...
Climate Change – No Longer Fringe Issue
Climate Change Sectors Water Cleaner Energy Sources Energy Efficiency Better Waste Management Carbon Credits Trading <ul><...
Source of Greenhouse Gas Emissions:  Energy Break-down Source: World Resources Institute Focus on Energy Generation, Usage...
Focus Now Shifting to Energy Efficiency <ul><li>Focus has been on alternative energy </li></ul><ul><li>BUT </li></ul><ul><...
Energy Efficiency Multiplier Effect Fuel = Coal Transmission Lines Power Plant 65% Loss 10% Loss Every 1 unit of energy sa...
2/3 of Projected Co2 emission savings to come from energy efficiency Source: International Energy Agency
Case study – Alternative Energy 10% Utilities   Wind Energy Solar Fuel Cells Bio Fuels 20% 25% 25% 10% Other (Emerging Tec...
Wind Industry – US$30billion Market Expected growth rate – 20%+ growth a year Global Wind Energy Growth forecast
Investment Driver: Falling Renewable Energy Costs Source: United Nations Economic and Social Council Source: EIA, American...
Stock Selection Framework <ul><li>Sector Analysis </li></ul><ul><ul><ul><ul><ul><li>Life cycle of sector </li></ul></ul></...
Wind Sector Value Chain
Correlation with Global Equities
<ul><li>Climate change and natural resource shortages will impact on our investments  </li></ul><ul><li>Contribute to solu...
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Sustainable Thematic Funds and Long-Term Investment Returns

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Presentation by Steven Falci at TBLI CONFERENCE EUROPE 2008.

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Sustainable Thematic Funds and Long-Term Investment Returns

  1. 1. Sustainable Thematic Funds and Long-Term Investment Returns TBLI Conference Europe 2008 Steven Falci, CFA Vice President Sustainable Investment KBC Asset Management Limited Amsterdam Nov 13 th & 14 th 2008
  2. 2. Environmental Issues on the Agenda
  3. 3. Sustainable Thematic Funds Agribusiness Renewable Energy Water Climate Change
  4. 4. Global Mega Trends- Sustainability Imperatives <ul><li>Population Growth/ Industrialisation/ GDP Growth </li></ul><ul><li>Supply and Demand for Natural Resources </li></ul><ul><li>Climate Change </li></ul>
  5. 5. Sources of Long-Term Return <ul><li>Sustainable Themes Sustainability Solutions </li></ul><ul><li>Sustainable Strategic Framework - Selection of sectors within each theme best positioned to outperform over the long run </li></ul><ul><li>Selection of best stocks within each sector </li></ul>
  6. 6. Alternative Energy: the central issues Fossil Sources Renewable Energy Long-Term Supply Constraints Security of Fuel Supply Climate Change Falling Costs/Rising Demand Local Environmental / Political
  7. 7. Investment Driver: Current Market Share <ul><li>Renewable Energy </li></ul><ul><ul><li>• Wind </li></ul></ul><ul><ul><li>• Solar • Biofuels </li></ul></ul><ul><ul><li>• Fuel Cells • Waste to Energy </li></ul></ul>International Energy Agency: 30% of all energy related Investments in next 30 years will be in renewables Renewable electricity capacity, share of 2005 electricity production Source: REN 21 “Renewables Global Status Report 2006 Update”
  8. 8. Investment Driver: Falling Renewable Energy Costs Source: United Nations Economic and Social Council Source: EIA, American Wind Energy Association Renewable energy actual cost of production — cents/kWh Expected cumulative reduction in costs of renewable technologies by 2020
  9. 9. What Do We Mean By Investing In Water? Stage 4 Secondary disinfection treatment prior to discharge into the environment Stage 3 Residential, commercial and industrial water use Stage 2 Filtration and disinfection process Stage 1 Sources of water: ground or surface water
  10. 10. Investment Driver Water Demand Sources: US Census Bureau / German Ministry of Environment Economic Growth Population Growth Standard of Living
  11. 11. Global Supply versus Demand for Water Source: UNESCO
  12. 12. 2006 Projected Capital Expenditure Projected expenditure on water infrastructure, 2006 Source: OECD, IMF, Credit Suisse estimates Current exp on water infrastructure (US$bn) Current exp on water infrastructure (% GDP) Projected exp on water infrastructure as % GDP by 2025 Average annual investment (US$bn) by 2025 Annual avg real growth rate (2006–25) by 2025 North America 109.6 0.75% 1.08% 246.4 4.4% South America 18.0 0.94% 1.52% 61.6 6.7% Europe 135.5 0.83% 0.94% 284.2 4.0% Asia 85.2 0.97% 2.06% 606.1 10.9% Australasia 7.3 0.85% 1.10% 14.8 3.8% Total 355.6 0.84% 1.38% 1,213.0 6.4%
  13. 13. Climate Change – No Longer Fringe Issue
  14. 14. Climate Change Sectors Water Cleaner Energy Sources Energy Efficiency Better Waste Management Carbon Credits Trading <ul><li>Physical </li></ul><ul><li>temperature, wind, precipitation </li></ul><ul><li>Regulation </li></ul><ul><li>environmental legislation, subsidies </li></ul><ul><li>Behavioral </li></ul><ul><li>Voluntary actions, client behavior, reputational risk </li></ul>
  15. 15. Source of Greenhouse Gas Emissions: Energy Break-down Source: World Resources Institute Focus on Energy Generation, Usage and Transportation
  16. 16. Focus Now Shifting to Energy Efficiency <ul><li>Focus has been on alternative energy </li></ul><ul><li>BUT </li></ul><ul><li>Energy Efficiency! </li></ul><ul><li> - Immediate Impact </li></ul><ul><li> - Multiplier effect </li></ul>Definition = Delivering the same or better output with reduced power consumption
  17. 17. Energy Efficiency Multiplier Effect Fuel = Coal Transmission Lines Power Plant 65% Loss 10% Loss Every 1 unit of energy saved at home or business represents up to 4 units saved at the power plant Source: Sustainable Energy, Choosing Among Options (Tester, Drake, Driscoll, Golay, Peters), UBS Research
  18. 18. 2/3 of Projected Co2 emission savings to come from energy efficiency Source: International Energy Agency
  19. 19. Case study – Alternative Energy 10% Utilities Wind Energy Solar Fuel Cells Bio Fuels 20% 25% 25% 10% Other (Emerging Technologies) 10%
  20. 20. Wind Industry – US$30billion Market Expected growth rate – 20%+ growth a year Global Wind Energy Growth forecast
  21. 21. Investment Driver: Falling Renewable Energy Costs Source: United Nations Economic and Social Council Source: EIA, American Wind Energy Association Renewable energy actual cost of production — cents/kWh Expected cumulative reduction in costs of renewable technologies by 2020
  22. 22. Stock Selection Framework <ul><li>Sector Analysis </li></ul><ul><ul><ul><ul><ul><li>Life cycle of sector </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Structure of value chain </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Bottlenecks in value chain </li></ul></ul></ul></ul></ul><ul><li>Company Analysis </li></ul><ul><ul><ul><ul><ul><li>Life Cycle of company </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Structure & quality of management </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Product & services range </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Positioning in value chain </li></ul></ul></ul></ul></ul><ul><li>Financials </li></ul><ul><ul><ul><ul><ul><li>Balance Sheet </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Access to capital </li></ul></ul></ul></ul></ul><ul><li>Valuation </li></ul><ul><ul><ul><ul><ul><li>FCF Models </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Valuation Multiples </li></ul></ul></ul></ul></ul><ul><li>Price Targets </li></ul>
  23. 23. Wind Sector Value Chain
  24. 24. Correlation with Global Equities
  25. 25. <ul><li>Climate change and natural resource shortages will impact on our investments </li></ul><ul><li>Contribute to solutions to our sustainability challenge </li></ul><ul><li>Enhance the potential for long-tem returns </li></ul>
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