SDG Spotlight: energy transition

3 min read 21 Feb 23

The UN’s Sustainable Development Goals (SDGs) provide a framework for achieving a better, more sustainable future for all. In this article, we consider the transition towards a cleaner, more sustainable energy system, and assess the progress towards achieving the related SDGs.

What are the United Nations Sustainable Development Goals?

The United Nations Sustainable Development Goals (SDGs) are a collection of 17 interconnected goals, which together form a blueprint for peace and prosperity for people and the planet, now and into the future. The goals cover areas such as ending poverty and improving health, reducing inequality, tackling climate change and preserving our oceans and forests. 

The scale of the challenge

In November 2021, the COP26 conference on climate change saw almost 200 countries affirming their commitment to limit average global warming to 1.5 degrees Celsius above pre-industrial rates, as the effects of higher temperatures, floods, fires and loss of biodiversity continues to be felt around the world. But to achieve progress on SDG 13: Climate action, the United Nations believes we must cut global emissions by 45% by 2030 compared to 2010 levels or these symptoms will only intensify.

With energy production making up a significant proportion of global emissions, clean energy will play a vital role if we are to meet this goal. However, progress towards SDG 7: Affordable and clean energy, has taken a backwards step in recent years. The overall share of renewable energy in total energy consumption has only increased from 16.1% in 2010 to 17.7% in 2021. Rapid electrification has led to a growing demand for energy, and it is now necessary to decarbonise the energy system just as rapidly. While renewable energy per capita has increased by 57.6% globally since 2015, at the current pace it will take the least developed countries 40 years to catch up with developed and developing countries.

Geopolitical barriers to progress

Furthermore, Russia’s war in Ukraine, inflation, food security and particularly energy security issues, have tested political focus and resolve on tackling emissions. Germany, Italy, the US and China are among the countries currently increasing their reliance on coal – described as the ‘dirtiest fossil fuel’, while higher military and national security spending also adversely impacts the energy transition.

Not only are armies themselves generators of huge carbon emissions – the US military emitted more CO₂ in 2017 than the whole of Switzerland – but this will redirect funding away from the energy transition and climate plans, and may limit international cooperation on tackling climate change.

Everyone will be affected by a failure to meet our climate targets, but some people will fare worse than others. The ND-GAIN index indicates how vulnerable a country is to climate change – and how well it will be able to adapt. The most vulnerable countries are also those who might struggle economically and politically to adapt. Indeed, rising sea levels threaten the very existence of island states such as Kiribati, according to the World Health Organisation. 

At the same time, this demonstrates how climate change and cleaner energy are especially interesting areas for impact investing – which aims to contribute towards solving many societal and social issues.

The role of finance

As countries move along the development curve, their energy demand is increasing, making low-carbon energy production an essential investment area if we are to achieve SDG 7: Affordable and clean energy, and also make progress on SDG 11: Sustainable cities and communities, SDG 9: Industry, innovation and infrastructure, SDG 10: Responsible consumption and production, and SDG 3: Good health and well-being. 

It’s no surprise that a number of our fund managers have been looking at companies globally that focus on solar, wind, hydro and to a lesser extent biomass energy, that seek to deliver positive environmental impacts whilst targeting a financial return. Interest is also growing in investments facilitating distributed energy solutions, which ease constraints on the grid, reduce costs and reduce losses to support further renewable penetration. For example, our early-stage, private assets impact strategy has recently invested in Sun King, a leading solar off-grid energy company in sub-Saharan Africa.

In public assets, a number of our strategies focus on climate change, with investments in companies such as Rockwool (energy-efficient insulation) and Schneider Electric (clean energy system components). To help encourage companies to switch to alternatives to fossil fuels, we are also phasing out investment in thermal coal by 2030 for developed countries and 2040 for emerging markets, as part of our goal of net zero carbon emissions across all our investment portfolios by 2050, at the latest. 

The energy transition is not clean cut, nor will it happen overnight. However, if we allocate financing appropriately, we can contribute to a cleaner and greener future.

The SDG Reckoning report – an update on progress towards the SDGs

Progress towards achieving the SDGs has been tentative at best over the past few years, with the COVID-19 pandemic causing setbacks in many areas. In the annual SDG Reckoning report, published by our parent company M&G plc, we assess the progress towards each of the 17 SDGs, both from a general perspective and through an impact investing lens. 

Read the report

Please note that, while we support the UN SDGs, we are not associated with the UN and our funds are not endorsed by them.

The value of a fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.

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