Green assets and new tech to drive climate transition

The transition to a low carbon economy is integral to sustainable economic growth, according to Axa IM's Chris Iggo

Growing awareness – and urgency – around the importance of tackling climate change is fuelling interest in green assets and new technologies to help drive the transition, but the investment team at Axa Investment Managers (Axa IM) has said that without a bigger commitment to a low carbon economy, sustainable economic growth will be difficult to achieve.

“We need to bolster and accelerate our efforts to tackle climate change,” explained Chris Iggo (pictured), chair of the Axa IM Investment Institute. “Emissions need to be reduced by 45% by 2030 and reach net zero by 2050.”

To stem rising sea levels, extreme weather, societal disruption and the loss of economic activity requires a dramatic cut in greenhouse gases (GHGs) – by moving the global energy sector away from fossil-based fuels and towards greener, renewable alternatives.

“If we don’t, we may jeopardise the global economy and the prospect of a prosperous future,” added Iggo.

Taking action

For investors, the opportunity these dynamics present is much greater than assessing risks and making exclusions.

Axa IM sees growing potential for direct exposure to green bonds, green real estate and forestry, for example.

At its core, this is about investors understanding and adapting to the risks that climate change poses for business models and to communities, Iggo explained.

“Companies with poor environmental footprints and poorly thought-out carbon pathways may underperform, while at the extreme end we may well see stranded assets rendered un-investable by the pace of policy or consumer change.”

At the same time, he said new technologies being employed to help the transition to a cleaner economy may provide a series of opportunities for investors.

“This technology, that is both directly and indirectly related to the energy transition, is evolving rapidly,” said Iggo. “We are already seeing fairly mature developments in solar and wind and other renewable energy sources, but they still have to scale up massively to contribute fully to the fight against climate change.”

The evolution of technology also makes it increasingly possible to use analysis, data and portfolio construction techniques to align portfolios with the ambition of a net zero carbon world.

“When it comes to selecting securities, it is vital to assess how climate change could impact a particular business and its future profitability,” added Iggo.