The COP26 UN climate summit was loaded with high hopes. As the world is not meeting the goals of the 2015 Paris Climate Agreement, policymakers are expected to push for more ambitious climate plans to accelerate the energy transition. Experts from Swiss credit have turned the spotlight on three top picks of the energy transition that should benefit from the clean energy investments needed for achieve net zero emissions by 2050, with a view to keeping global warming below 1.5 ° C by the end of this century.
Air Liquide (hydrogen)
Industrial gases are more resilient in an uncertain market environment, where we believe Air Liquide will be able to close the gap to its chemical competitors in terms of profit margins; this should also support stronger earnings growth for the company in the future compared to peers. The latest Q3 earnings came in slightly above consensus expectations. Additionally, management reports higher operating margins and net profits going forward. Capital discipline in the industry has improved overall, with companies avoiding accumulating overcapacity in the chemicals sector; consequently, in the next few years, Air Liquid’s yields could record a sustainable increase, also thanks to the potential support of new hydrogen projects.
Brookfield Renewable Partners (renewable energy generation)
Brookfield manages renewable energy assets on a global scale and about half of the electricity generated comes from hydroelectricity and the rest from wind and solar energy. Given that reaching the net zero emissions target for 2050 requires a significant increase in renewable energy production capacity, Brookfield’s development pipeline is focused on solar and wind assets. Not only that, Brookfield’s growth is attributable to bolt-on acquisitions of renewables capacity that require operational skills – therefore, in general, the company refrains from participating in competitive auction procedures, where intense competition tends to weigh on project returns.
Schneider Electric (power grids, energy efficiency)
Despite supply disruptions, Schneider’s Q3 2021 revenue rose organically 8.8%, and the company expects demand to remain strong going forward. Schneider benefited from the continuing trend towards sustainability, digitalization and electrification. The medium-term growth potential is attractive, in our view, given its exposure to industrial automation and energy management. These two activities help customers reduce energy consumption and increase energy efficiency, which are important issues with businesses setting more ambitious environmental, social and governance (ESG) targets. The company itself has set ambitious internal ESG goals: zero-emissions operations by 2025, 100% carbon-neutral products by 2040, and a net-zero carbon supply chain by 2050.