How investors are coping with Europe’s record heatwave

LONDON — Several countries in Western Europe have been hit by record heatwaves this week, with the UK, France, Germany, Switzerland and Italy issuing red alerts warning that “even healthy citizens are at risk for their lives.”

Tropical Nights offered little respite from the far-above-average June heat, with temperatures well above 40 degrees Celsius (104 degrees Fahrenheit) in towns and cities across various regions. Old buildings and infrastructure, limited access to air conditioning, and little adaptation to high temperatures mean that Europeans are less able to cope with such temperatures than in other parts of the world.

Amid warnings that climate change will make scorching temperatures more common, some investors are rethinking how to prepare their portfolios for the social changes expected to come with future heatwaves.

Stephanie Niven, co-portfolio manager of NinetyOne’s global sustainable equity strategy, told CNBC on a conference call Friday that her team sees the rise in severe weather conditions in Europe creating structural growth opportunities for investments.

He said the Global Sustainable Equity Fund’s management team is looking for companies that offer products and solutions that “help people respond to difficult times and build resilience.” Its investments include companies focused on decarbonization, climate adaptation, water and pollution management, financial inclusion, and healthcare impact.

One of the broad areas of focus for the fund is insurance, Niven said, naming brokers and reinsurance companies. Aon and Canadian insurance companies intact finances As two of the holdings in this sector.

He told CNBC that NinetyOne’s team is particularly interested in companies “with policies that support people suffering from climate change and increase the world’s ability to respond.”

“We are seeing insurers (creating) more up-to-date climate modeling in their risk systems,” she said.

Niven added that El Niño, expected to develop later this year, could also disrupt weather norms and shake up the insurance industry in ways that investors should keep an eye on.

“This could be a shock that disrupts the soft cycle that has been in place for many years,” she says. “Strengthening El Niño could have very interesting implications for the insurance cycle. There will be fewer hurricanes, but they will become more powerful, increasing the likelihood of huge losses, and creating a big shock to the insurance cycle. Very large events could present huge opportunities for this sector.”

“We prefer companies that focus on protection gaps and enable matching of risk and coverage,” she added.

Alongside insurance, Niven’s fund is looking for companies that can offer physical climate adaptation, such as New York-listed companies. Trane Technologiesmanufactures cooling and refrigeration systems. Financial inclusion is another area of ​​focus for the fund, and Niven said the fund’s leadership team is looking for companies that can support “financial resiliency that brings new people and communities into the financial infrastructure to keep businesses afloat.”

Michael Field, chief equity strategist at Morningstar, agreed that there are companies on the continent poised to benefit from a hot summer.

“Indeed, industrial companies johnson controls and siemens “Both companies operate in the HVAC field, specifically in the manufacturing of commercial heat pumps,” he said in an email Friday. Modern pumps can also act as cooling devices, making them an effective solution in more severe summer weather. ”

Mr. Field added that due to intensifying weather and its associated negative effects, especially on emerging economies, a shift away from fossil fuels and toward clean energy could benefit utilities.

“A name like Vestas and iberdrolaThey could be direct beneficiaries of cleaner wind energy,” he said. “Similarly, moves to upgrade the power grid to accommodate renewable energy sources could benefit companies such as: national grid In the UK, the oil majors are shell and totalCompanies with significant exposure to solar projects and biofuels may also benefit. ”

Matthew Donen, director of equity research at Morningstar, added that the current heat wave is putting further pressure on Europe’s power grids, with spot power prices rising as cooling demand soars.

“Increased demand has forced several factories to reduce production due to our aging power infrastructure,” he said in an email. “This highlights the long-term need for grid modernization. ABB, schneider electric and siemens Companies are the primary beneficiaries of this structural investment theme, providing the switchgear, transformers, grid automation and power management equipment that utilities need to shore up and expand their aging power infrastructure. ”

UBS strategists said in a note on Friday that the heatwave, with temperatures as high as 18 degrees Celsius above normal, will have a direct impact on the economy and present investment opportunities as populations and authorities scramble to adapt.

“Western Europe is experiencing a heatwave, disrupting electricity supplies, closing schools, and affecting transport and cultural attractions,” they said.

“Nuclear power plants in France reduced total demand by around 7% as high temperatures limited access to cooling water and disrupted rail networks, schools and working hours in several countries. This event could further build political momentum supporting investment in decarbonisation, climate adaptation, electrification and energy efficiency.”

The UBS team also noted that the continent’s decarbonization strategy and energy policy are “among the most ambitious globally.”

“While we are neutral on euro area equities as a whole, we believe decarbonization is just one of several long-term trends that investors should focus on,” he said.