INVESTING IN THE ROAD TO ZERO CARBON

Engaging with renewable energy champions on both sides of the Atlantic

Among the core holdings in the M&G Global Listed Infrastructure Fund are NextEra Energy and Enel, two companies at the vanguard of renewable energy deployments. The critical nature of the underlying assets epitomises the attractions of infrastructure as an asset class, while the structural growth in renewables provides a powerful long-term tailwind for companies addressing climate change.

NEXTERA ENERGY

NextEra Energy is a US utility company which ranks as the world’s largest producer of wind and solar energy. With a broad geographic footprint across the US, NextEra Energy is the nation’s leading provider of clean energy including natural gas, a key transition fuel for the reduction of carbon emissions. It is also a market leader in energy storage, with more capacity than any other company in the US, to improve the efficiency of energy use. Sustainability is at the core of the company’s strategy to benefit a broad range of stakeholders: the environment by way of its focus on clean sources of energy, customers by way of a reliable service and lower costs, and shareholders by way of consistently rising cashflows and dividends. We invested in NextEra Energy at the fund’s launch in October 2017 and we have been duly rewarded with higher dividends and a higher share price. Past performance is not a guide to future performance.

ENEL

Enel, the Italian utility, shares the same philosophy of sustainable growth, with a vision of becoming a ‘super major’ in renewables over the next decade. Enel is a domestic champion but also a global company with a significant presence in the long-term growth markets of South America. Enel’s strategy combines significant and growing investment in renewables with an acceleration in decarbonisation by way of phasing out coal. Renewables capacity is expected to triple over the next 10 years, with renewables accounting for more than 80% of group power generation capacity in 2030, up from 55% today.

Enabling the development of electric mobility is another key initiative, with Enel embarking upon the single largest deployment of charging stations in Europe. The company is proposing to increase the number of charging stations across the group by more than fourfold over the next three years, from 175,000 today to 780,000 in 2023. Charging points for electric buses is expected to increase by a multiple of six over the same period to support cities in their path towards sustainability. Enel also has a clear commitment to returning cash to shareholders. The company’s guidance for dividend growth over the next three years is approximately 7% per annum. We invested in Enel in June 2018 when concerns about the political and fiscal situation in Italy led to indiscriminate selling in the Italian stock market, particularly in the more interest-rate sensitive sectors. Enel’s business is not confined to the domestic market and we saw the sentiment-driven weakness as a buying opportunity. The stock was purchased on a historic yield of more than 5% with robust and reliable growth in the dividend stream.