Decarbonisation 2050: Investment opportunities on the path to net zero

We see decarbonisation as a structural trend that will become increasingly prevalent over the coming decades, with huge amounts of investment needed. There are attractive potential opportunities for long-term investors, by seeking quality companies taking action to reduce their own emissions, or providing solutions for others to do so.

In recent years, extreme weather has highlighted the damage that climate change is inflicting on people and the planet, and the urgent need to decarbonise the global economy. According to the Intergovernmental Panel on Climate Change (IPCC), we will require deep, rapid and sustained GHG emission reductions over the coming decades, reaching net zero emissions by 2050, if we are to avoid the worst effects of climate change and limit global warming to below 1.5°C above pre-industrial levels.

“We believe decarbonisation is a structural trend offering significant opportunities for long-term investors.”
 

Huge investment is needed

Reaching net zero will require large amounts of capital investment over the coming decades. BloombergNEF forecasts that a successful net zero transition could require up to US$200 trillion of total investment by 2050, or US$7 trillion annually. Encouragingly, governments around the world are backing their ambitious climate targets with policies and regulations, as we have seen with the US Inflation Reduction Act and European Union’s REPowerEU programme.

The $200 trillion path to net zero

Opportunities for long-term investors

With this in mind, we believe decarbonisation is a structural trend offering significant opportunities for long-term investors. We aim to invest in this area by seeking companies making tangible contributions towards the Paris Agreement on climate change, either by reducing their own emissions and/or providing the solutions for others to do so.

For example, they may have set science-based targets (SBTi) – these are GHG emission reduction targets aligned with the reductions needed to limit the worst effects of climate change, according to the latest climate science. Alternatively, they may provide solutions that help others to save or avoid GHG emissions, by offering products or services in areas such as clean energy, improved efficiency or promoting a circular economy.

Strong, defensive business models

Structural themes alone are not enough for successful long-term investments. We look to combine the theme with companies that exhibit strong business models that are defensible from competition and possess the ability to compound returns over a long time period.  This provides a greater chance of generating attractive long-term financial returns for our clients, while also supporting the decarbonisation efforts required to tackle climate change.

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. The views expressed in this document should not be taken as a recommendation, advice or forecast.