The Iran war has highlighted the importance of renewables, say EdenTree fund managers.
Although the UK imports very little oil from the Middle East directly, it is affected by the volatility in global energy prices. When supply chains are disrupted and prices spike, it can lead to higher inflation, pressure on interest rates as well as pose a drag on economic growth.
Charlie Thomas, CIO and manager of the EdenTree Green Impact Equity fund, said: “Global economies are increasingly recognising the need to reduce their dependence on the international oil supply chain.
“Energy systems were built around the transportation of oil and gas along the world’s trade routes, which, as recent events have again shown, are vulnerable to conflict, sanctions and geopolitical brinkmanship. But this is changing, and we see two key areas that can make genuine energy independence achievable.”
According to Thomas, the first is energy efficiency. Advances in building insulation, industrial processes, smart grid management and low-energy technologies are reducing the energy that economies need to function.
The second is renewable energy. Wind and solar power are now among the cheapest sources of electricity, says Thomas, and unlike oil and gas which must be extracted, refined, transported and traded across global networks, renewable energy can be generated where it is consumed.
Thomas added: “Renewables are inherently domestic and independent, severing the link between a country’s energy security and the instability of global commodity supply chains, especially when combined with batteries to allow greater flexibility.”
David Osfield, manager of the EdenTree Sustainable Global Equity Fund, commented: “In response to heightened geopolitical volatility and tightening financial conditions, we believe a defensive stance is warranted.
“Following strong returns from the space, we have reduced our exposure in the EdenTree Sustainable Global Equity Fund to the technology sector, with the industry facing both energy-cost headwinds as well as Iran-induced supply chain disruption from key input materials.
“In contrast, we continue to see opportunity in renewable energy, particularly companies building the infrastructure required to provide energy security. Renewables are a fast, scalable and cost-effective response to the energy security challenges now intensifying across the world.
“Energy independence is no longer an aspiration but a necessity. Fundamentally, we believe this conflict has highlighted the importance of energy security, and renewable energy is one of the fastest and most affordable ways to gain this.”
Main image: federico-beccari-ahi73ZN5P0Y-unsplash
