Strategy
Outlook For Renewable Energy Looks Bright In 2023 – Franklin Templeton

Craig Cameron, portfolio manager and research analyst at Templeton Global Equity Group, believes that there are substantial opportunities in 2023 in companies deemed undervalued that can also have a positive impact on climate change mitigation and adaptation.
As markets approach 2023, US-based investment manager Franklin Templeton believes that the global economic and geopolitical outlook remains highly uncertain, but the commitment to decarbonization is robust and the outlook for renewable energy remains bright.
According to Merrill Lynch, net-zero emission targets were in place in countries accounting for 91 per cent of global gross domestic product. A notable development in Europe was that, in spite of higher economic growth compared to the prior period a year ago, the region’s emissions declined between August and October of 2022, Cameron said.
This is a promising development, showing that recent efforts to
decarbonize may be bearing fruit as well as confounding the idea
that economic growth and emissions' reductions are mutually
exclusive, he continued.
“Offsetting this is our general concern that the current global
response is likely too little, too late for tackling climate
change meaningfully, and our base case expectation is that
without material, incremental regulatory intervention or societal
shifts, the world will almost certainly overshoot the 1.5 °C
warming goal set under the Paris Climate Agreement,” he
said.
“Tackling this important human-wide challenge has the potential to cause further trade barriers and restrictions between countries if the commitment and action toward mitigating climate change varies by region,” Cameron added.
“Moreover, ongoing efforts to decarbonize are likely to intensify
inflation pressures through the economic cycle as material
bottlenecks and/or the imposition of higher taxes and regulatory
requirements drive inflation higher. We believe the themes of
decarbonization and deglobalization are interlinked and, in fact,
magnify each other as we enter what may prove to be a very
different macroeconomic environment than in the recent past,” he
said.
Investment opportunities
Against this backdrop, Cameron sees value in companies that
provide products and services to aid in the global
decarbonization challenge. He found some in the industrials
sector, including renewable energy equipment companies, and
particularly those that benefit from the US IRA. He also found
opportunities in companies that focus on energy efficiency
solutions, particularly those benefiting from higher power prices
in the short term and decarbonization efforts in the long
term.
Elsewhere, in terms of portfolio composition, he is optimistic
about the materials sector. In particular, he sees strong demand
growth in metals which are needed to enable the transition to a
low carbon economy, including nickel, lithium, copper and
aluminium.
Additionally, Cameron anticipates that sustainable packaging such
as cardboard, aluminium and recycled plastic should continue to
take market share from traditional plastic packaging, with the
potential for both consumer tastes and regulation
accelerating this trend.
Within the information technology sector, he identified
opportunities in semiconductor companies through the year as
valuations became more attractive.
Regarding electric vehicles, he feels the opportunity set has
broadened and the firm found value in transitioning automotive
companies that are committing to meaningful change as well as
auto suppliers geared toward the transition to greener
production.
While the market consensus is focused on the near-term
macroeconomic environment, the firm invests in companies for the
long term, and feels that the case for investing in
climate-change mitigation and adaptation has never been
stronger.
Broad declines such as those the market experienced in 2022 are painful, he said, but also provide the greatest long-term investment opportunities. He believes that the themes of decarbonization and deglobalization could define the years ahead.
Amidst this backdrop, Cameron sees opportunities in companies deemed undervalued that can also have a positive impact on climate change mitigation and adaptation.