Impact and sustainable investing
3 min read 4 Nov 21
With all eyes fixated on the fixture that will determine the future of our planet, investors, corporates and the public at large are focused on one overall figure: global carbon emissions.
Corporates have traditionally been the outer layers of the onion at previous UN climate meetings, but with no fewer than one-fifth of global companies announcing net zero targets1 in line with the common goal of the Paris Accord to “pursue efforts” to limit temperature increases to 1.5 degrees Celsius above pre-industrial levels, their advancement to the core is on full display in Glasgow at COP26 (31 October to 12 November).
Investors, and by extension stewards of capital, play key roles in the form of holding companies to account for their targets set in line with the science and allocating capital to unearth innovative solutions given the sheer size of the challenge.
“If we’re going to get on this journey to net zero by 2050, there isn’t a single part of what we do that isn’t going to be affected: the way we eat, travel, live and work,” Randeep Somel, manager of the M&G Climate Solutions Strategy said at the “Countdown to COP26” roundtable.
Studies have put the funding requirements between now and 2050 anywhere between US$92 trillion and US$173 trillion, highlighting the growth opportunities for companies involved in the race to decarbonise.2
The stark reality, however, is that around one-third of emissions today cannot be electrified, demonstrating the need for more technological solutions if we are to reach net zero by 2050.
Consensus is now forming that hydrogen – and specifically green hydrogen – is the best alternative to activities that cannot be electrified, as shown by hydrogen strategies put forward by the UK, EU and US. Green hydrogen is needed to target heavy-emitting CO2 sectors such as cement, aviation, shipping and steel manufacturing.
“We’ve identified companies which both manufacture electrolysers that convert renewable energy sources into hydrogen, and also fuel cell companies on the other side that then take that hydrogen and convert it back into electricity. These are innovative, cutting-edge technology companies,” added Somel.
Given the limited window of opportunity to decarbonise the way we live, the need to reposition towards developing and scaling up technologies to meet the challenges has never been greater for long-term investors, who must ensure that investee companies not only have good technology, but also intellectual property, business models and management teams who are capable of executing the task ahead.
Effectively deploying investor capital is a viable pathway for investors to support economy-wide decarbonisation by tapping into early stage companies who are their focusing efforts here, but not yet listed or early stage listed, to enhance their scalability and maturity.
“Carbon pricing,” noted Somel. “If we had a sensible price for all the externalities that carbon caused in the atmosphere, we could economically do a better job of incorporating this price into emissions and be much better at abating those emissions.”
“Why it only works in a forum like COP26 is that one country or region doesn’t want to disadvantage itself when it comes to trade by putting in a carbon price when other countries and regions don’t.
“It’s only through getting together that you start having these conversations and if we can make a move towards better carbon pricing, then I do believe that COP26 will be a watershed moment. A decision may not be made at the conference itself, but the conversation needs to begin somewhere.” Somel concluded.
1 One-fifth of world's largest corporates have set net-zero targets (edie.net)
2 Greening Energy to Fight Climate Threat May Cost $92 Trillion - Bloomberg
The views expressed in this document should not be taken as a recommendation, advice or forecast. The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance.