Impact and sustainable investing
3 min read 5 Jun 23
The latest IPCC report on climate change, published in March 2023, makes for sobering reading. To stand a chance of limiting global warming to 1.5 degrees – or of reducing warming if we overshoot this target – not only are “deep and rapid” reductions in carbon dioxide, methane, and other greenhouse gas (GHG) emissions required, but we also need to take active steps to remove carbon dioxide from the atmosphere. Decarbonisation alone is no longer enough, and nor are natural sequestration sinks such as trees and soil.
Some carbon capture and storage (CCS) technologies, which take carbon dioxide from the atmosphere and store it permanently, have been questioned by some campaigners, who fear they could delay the necessary transition away from fossil fuels. But the IPCC’s report, which has looked in detail at the risks, costs and benefits, now says CCS has a key role to play1 in mitigating the emissions of hard-to-abate industries, like steel and cement production, and also in contributing to the net negative carbon reduction required in all pathways to 1.5 degrees.
The IPCC’s report is encouraging for the CCS sector, which is still in a relatively early stage of development. CCS now requires significant investment to build operational commercial facilities based on current technology, and even more importantly, to research and develop new, more cost- and energy-efficient techniques of carbon removal to be rolled out at scale.
Public equity opportunities to invest in the sector are still very limited. However, with its thematic focus on tackling climate change, long-term investment view and capacity to invest at scale, M&G’s Catalyst team is one of the first institutional investors providing capital to support carbon capture development via private markets.
Catalyst’s initial early stage equity investment in the CCS ecosystem came in 2021, with Storegga, a UK-based company which aims to capture carbon dioxide from industrial emitters before it enters the air and to store it in existing geological formations under the North Sea. If successful, this will help the UK achieve its current target of storing 50 million tonnes of carbon by 20352.
In 2022, Catalyst invested in Climeworks, a Swiss business which has built the world’s first operational and commercial large scale carbon removal plant in Iceland. The facility, which runs on clean geothermal energy, uses a process called “Direct Air Capture” (DAC) to remove up to 4,000 tonnes of carbon from the atmosphere a year, which is then stored underground. A second plant is already under construction, which should be able to capture and store up to 36,000 tonnes a year when fully operational. As a pioneer in this complex industry, we believe that Climeworks is taking a sensible and patient modular approach to scaling these plants over time to Megatonne scale.
That was followed in 2022 by an investment in Svante, a Canadian company which makes special filters to be used to capture carbon both at point-source from industrial emissions and also through DAC from the atmosphere, allowing it to be reused or transported and stored underground. The company is also working on ways to help emitters convert captured carbon into new materials, such as sustainable aviation fuel.
While it is still early days for the industry, the science is now clear: carbon capture is necessary. What matters now is applying capital where it counts – to help scale this high-potential technology as quickly as possible.
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