Over the past year, some of Canada’s biggest pension funds (CPPIB, OMERS and Teachers’ for example) have stepped forward and committed to reaching net zero in their portfolios by 2050. As more asset owners follow suit and seek to reduce their carbon footprint in the years ahead, there will be greater investment in green and transition assets like renewable energy and a resulting shift away from traditional fossil fuel companies. Divestment from such companies, however, isn’t something most large plans have moved to do - and that’s a positive given that many of these companies have made commitments to net zero themselves. In fact, some of them are rapidly developing and adopting technologies that help clean up the production and refining of natural resources and other materials.
Along with their efforts, there are many other companies focused on end-of-life recycling and repurposing technologies. This is a future that is worth investing in. Often referred to as “cleanup technology”, this is a segment of the sustainable universe we are watching closely. While many of these technologies have quick economic paybacks, they will also become more valuable as environmental regulations and the costs of producing new materials increase.
To see how that can happen, let’s look at several packaging companies we’ve invested in. They’ve developed important supply chains of recycled fiber that can be reused in the manufacturing of boxboard. We’ve also backed technologies that could re-purpose reclaimed restaurant grease and/or waste animal fats to produce biodiesel and renewable diesel.
The pandemic represents a challenge, however - during COVID, access to the supply chains of these recycled inputs has become more challenging. As a result, we don’t currently see the same opportunities in the renewable fuels space that we did even a few years ago. The risks of regulatory support waning and supply-demand imbalances of traditional fuels has made it harder to value these businesses.
But there are other growing areas of cleanup technology that have a great deal of potential, including innovations that make it easier to keep up with the production of electric vehicles - cobalt and lithium as well as rare earth metals.
To read more about cleanup technology, download Mackenzie’s full 2022 Environmental Outlook.