Cleantech: The biggest investment opportunity of our time

Cleantech – the biggest investment opportunity of our time?

The much-feared impacts of climate change demand action. A variety of companies in the cleantech sector have made that their mission – and their future looks bright. Cleantech investments are now considered to be the biggest investment opportunity.

Cleantech investments: The biggest boom of our time

The above-average growth in Supertrends, such as climate change and the energy transition, is continuing. In hardly any other area is so much money currently being invested. According to a recent study conducted by BloombergNEF, more than USD 500 billion in venture capital was pumped into this segment last year. That mountain of cash went to the two most economically promising areas of renewable energies and smart mobility. That equals a 25-fold increase since 2004.

Investment opportunities: global energy investments by sector

Investment opportunities: global energy investments by sector

Last data point 2020
Source: BloombergNEF

Unparalleled growth opportunities for cleantech

There are good reasons for that level of growth. The sector also offers unmatched prospects for future growth. Cleantech is disruptive, capital intensive, and more profitable than the IT industry 10 or 20 years ago. On top of that, it is being both demanded and promoted by legislators, businesses, and the public. Powerful investors, plus the serious profitability and diversification of cleantech companies distinguish the cleantech wave from the technology bubbles that have burst in the past.

Textbook herd momentum is accelerating this trend. The market behavior of key investors is pointing to the greatest investment opportunity of our time: complete decarbonization of the economy and society.

It therefore comes as no surprise that the amount of capital flowing into cleantech has increased five times faster than venture capital in other areas. Furthermore, the growth is reflected in the large number of cleantech unicorns on the market. A total of 43 are presently found in the US alone.

Major concerns? Why investment opportunities are promising.

The S&P 500 has doubled in only 354 trading days since March 23, 2020. Now, opinions differ on whether the stock exchanges are overheated judging by the rise in index levels. Is there perhaps more to it? The latter is probably the case, even though it will take longer for the market to double again. Yet, there is still too much money out there waiting to be invested on the capital market for a correction to happen.

Global earnings growth is likely to remain positive – perhaps even above average. The momentum speaks in favor of growing government spending, monetary policy, and continued pent-up demand. A recession or sharply rising interest rates appear unlikely. Despite all the gloomy predictions, monetary policy will remain accommodative for a long time to come.

Here are four points worth knowing for investors:

1.     The past has shown that earnings growth is the best prerequisite for rising stock prices. Markets have already priced in the slower pace of growth over the next few quarters.

2.    It is in the nature of equity markets in free market economies to hit new record levels. This property is accounted for by nominal economic growth and explains why equities generally perform best in the long term.

3.    There is statistically no reason to believe that the doubling of an exchange will be followed by a crash. On the contrary, analysis of the six phases in which the S&P 500 doubled during the post-war era reveals that, in five of six cases, it rose higher the following year and fell only once (from 2007 to 2008).

4.    Averages always tell only half the truth. For investors, above-average opportunities are interesting, and that is what the issues of climate change and energy transition offer.

Investment opportunities: S&P performance after doubling

Investment opportunities: S&P performance after doubling

Sources: Yardeni Research, Credit Suisse
Historical performance indicators and financial market scenarios are not reliable indicators of future performance.

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