Greener World, Greener Money

April 7, 2017

By Craig Maddock, CFP, FCSI, CIM, FICB, CFA, MBA
Vice President, Investment Management

With Earth Day approaching, I am not surprised to see people making an effort to be more environmentally conscious at this time of the year.

When I was growing up, my dad was always trying to save energy. He wouldn’t drive if he could walk or take a train. We had to turn off lights all the time. No air conditioner unless it was above 30˚C. Dad was no environmentalist—he was just frugal! To him, wasting energy was wasting money.

Today, there are a growing number of great businesses that are very profitable as they help people reduce the energy they use and also save money. My dad was clearly onto something.

Here are some of the companies we invest in within the MD Fossil Fuel Free Equity FundTM.

A very cool investment idea

One of the more interesting companies we invest in is Daikin Industries, the world’s largest maker of air conditioners. Global demand for air conditioning will only increase as economies advance, populations grow and urbanization continues.

At the same time, we know that air conditioning uses large amounts of energy, resulting in an increase in greenhouse gas emissions (which accelerates global warming and creates even greater demand for air conditioning!).

Daikin is focused on producing highly energy-efficient products to mitigate the environmental impact. For instance, its refrigerant HFC-32 has a much-lower global warming potential than that of conventional refrigerants—about one-third.

In addition to the HFC-32, Daikin aims to significantly reduce worldwide greenhouse gas emissions through its inverter air conditioners, which basically allows the compressor to operate at its optimal speed—fast when a room needs to be cooled quickly and slow to maintain a constant temperature and thus saving energy.

Not only do these technologies help the environment, they reduce costs for consumers and companies—making the green option the one that helps to save money.

Reducing emissions at the speed of a bullet (train)

East Japan Railway Company (JR East) is another company in the MD Fossil Fuel Free Equity FundTM that has found a way to reduce its energy cost while benefiting the environment.

JR East is one of the largest railway companies in the world. Serving 17 million passengers every day, it is the dominant operator of Tokyo rail and the Shinkansen bullet trains, which can travel up to 320 kilometres per hour.1

As a mode of passenger transport, rail is at least twice as energy efficient as cars, buses or cabs. Compared to air transport, rail is 35 times more energy efficient, which makes it potentially tens of thousands of times less carbon intensive.

Not surprisingly, one of JR East’s biggest costs is energy but it has found ways to source it sustainably. The company focuses on electric trains and is committed to expanding renewable energy to power its train network.

A huge priority for JR East is reducing its greenhouse gas emissions from its railway operations through energy saving. It has been investing in developing energy efficient rail technologies and also working on ecological station designs.

Back to the basics

If rail is the most energy efficient process for high volume transportation, then cycling is actually 15 times as energy efficient as rail for most people. And cycling can be hundreds or thousands of times less carbon intensive.

A company that fits into the environmental theme is Shimano Inc., a Japanese company that makes bike components (80% of its business), as well as fishing tackle and rowing equipment. Although it’s a Japanese company, the vast majority of its revenues come from outside Japan, making this a global company. Shimano has a 70% global market share for its bike components2, which are widely used by teams at Tour de France.

As worldwide interest grows in both leisure and fitness cycling, Shimano should benefit from expanding sales of its bike components. This will especially beneficial to Shimano as it has established efficient manufacturing capabilities and should enjoy further profitability as demand for bikes grows.

The lessons I learned growing up have shaped me as an investor today. I don’t like to overspend for anything, and I do like pragmatic, efficient businesses. As the world increases its focus on energy efficiency and cleaner technologies, I’m sure that we will identify more and more companies that are able to turn this desire into profitable and sustainable business ventures.  

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