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Efficient use of resources – such as energy and materials – lies at the heart of a sustainable global economy. Furthermore as the costs of energy and raw materials increase, driven in part by constraints on supply, so the financial arguments for greater energy and resource efficiency also become more prominent. 

The Challenge

The efficient use of energy and resources has long been overlooked by companies and governments, and although technologies exist for radical improvements in efficiency, typically these technologies have not been deployed on a large scale. ABB, the industrial goods company, estimates that for every unit of energy consumed in industrial processes, four units are lost through inefficiences.¹ 

• However, some countries for political or security reasons have implemented policies aimed at improving energy efficiency. For example, since the 1970s, Japan has succeeded in tripling its industrial output, while keeping overall energy usage almost flat.² 
• Efficiency is now emerging as a solution to the twin challenges of climate change and high energy and resource prices. For example, by improving the efficiency of energy use in buildings, electrical products, transportation and industry global emissions of CO2 could be reduced by 8 billion metric tonnes per year by 2020.

• Demand management – that is encouraging consumers to reduce demand – for example through clearer policy incentives, and the use of smart meters for electricity and water are also critical in ensuring the efficient use of resources.

Markets & Drivers

Unlike other solutions that reduce in greenhouse gas (GHG) emissions such as most forms of renewable energy, energy efficiency provides an immediate financial pay-back.  For a variety of technologies including insulation improvements, fuel efficient vehicles, lighting systems and solar water heating, there is a negative abatement marginal cost of reducing GHG emissions. In other words, reducing GHG emissions saves money.

As a result, policy-makers and businesses around the world are increasingly focusing on energy efficiency. The European Union, as part of its commitment to reduce energy use by 20% by 2020 is putting in place eco-design standards on 14 product groups including computers, boilers and street lighting to improve energy efficiency.

Developing countries too, including China and India have announced energy efficiency plans. China is targeting ten areas for improved efficiency including energy conservation in electric motors and buildings, and energy efficient lighting.

Investment Opportunities

The Efficiency theme focuses on companies whose goods and services reduce energy and resource use.  

In terms of how the Efficiency theme has contributed to the overall performance of the Industries of the Future Fund*, the results were as follows:

Theme Contribution

	2007		2006
	Theme Weighting (%)	% of Relative Fund performance Attributable to this Theme	Theme Weighting (%)	% of Relative Fund Performance Attributable to this Theme
Efficiency	15	13.92	15	3.13

Source: Henderson Global Investors, Factset, January 2008

* The Henderson Industries of the Future Fund adopts a 100% thematic approach to investing, based on the Industries of the Future strategy