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Agenda

Setting the investment agenda

04.02.2022

Agenda 2022 – Theme 3: Net Zero


“1.5°C Alive… but on life support.” The closing remarks to the 2021 UN Climate Change Conference in Glasgow highlighted how big a challenge the world still faces in the fight to avoid a climate catastrophe. 

Global leaders from 197 countries signed the Glasgow Climate Pact, the most progressive climate treaty since the Paris Agreement. However, resistance from some of the world’s largest carbon emitters such as China and India left many frustrated. 

Net zero pledges still have a lot of room to improve

Enlarge Source: International Energy Association

 

The progress made by the private sector over the past several years was significant. The number of corporations announcing net zero targets for the first time grew to over 2,000, representing US$23 trillion in market capitalisation. The weight of capital is sizeable – 220 asset managers representing US$57 trillion in assets under management, and
61 asset owners representing US$10 trillion, have upped the ante with significant commitment to net zero alliances. The world’s largest insurers and reinsurers have also committed to transitioning their underwriting portfolios away from fossil fuels. 

To achieve net zero by 2050 it is widely agreed the next decade will be the most crucial. Current global emissions need to fall by 45% by 2030. Scientists currently forecast a rise of 14%. 

The total investment required over this period is estimated to be in excess of US$30 trillion. Many believe decarbonising the global economy is the greatest opportunity for innovation the world has ever seen and compare climate technology today to the early days of software and computing. Disruptive innovations across power networks, charging networks, renewable energy and buildings upgrades will all be key to enabling a successful green transition. 

Deflationary forces across many of these technologies will facilitate widespread adoption and contribute significantly to an accelerated shift to a low carbon future. The cost of solar panels has come down by 91% over the last decade; lithium-ion battery costs, a critical component in electric vehicles (EVs), have fallen by 89% since 2010. Forecasts suggest improvements in energy grid capacity and battery storage can grow threefold from where we are today whilst some forecasts suggest breakthroughs in green hydrogen technology could help abate future global emissions by about 20%. 


45% Amount by which current global emissions need to fall by 2030.

 

Installed solar capacity is forecast to grow by 350% over the coming decade. Offshore wind power is seen as a key solution to tackling the intermittency problems faced by onshore wind and solar.

There is a significant growth potential for EVs given they represent just 4.6% of all new car sales globally and internal combustion engine (ICE) sales will be made illegal in many countries within the coming decade (Norway by 2025; UK, Ireland, Sweden, Iceland, Singapore and Israel by 2030).

 

Renewable energy installations forecast to grow strongly by 2030

Enlarge Source: BloombergNEF

 

Decarbonising the global economy is the greatest opportunity for innovation the world has ever seen.


A number of our investment managers employ strategies that aim to identify the long-term structural growth winners associated with tackling climate change and decarbonising the global economy. 

Munro Climate Leaders specifically targets global companies whose earnings prospects should improve with the increased investment and focus on decarbonisation. Of specific focus are four areas: Clean Energy Companies, Transport and Batteries, Buildings and Efficiency, and Packaging, Waste and Water. Global equities manager Artisan Global target specific exposure to sustainable energy solutions looking to gain access to companies that design, manufacture, install, and service wind turbines across the globe. Our emerging markets manager, RWC, invests in “green” commodities such as copper.

Within unlisted infrastructure, Morrison and Co target multiple themes including renewable energy generation, distributed energy, energy storage, network infrastructure and water infrastructure. 

Ultimately, companies that enable the decarbonisation process have the potential to become large, structural winners, while those relying on traditional fossil fuels will increasingly be challenged on their licence to operate. 

Total investment required to achieve net zero by 2050 is forecast to be US$56 trillion

Enlarge Source: Goldman Sachs

 

Download Agenda 2022 PDF

 


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