The issues raised by global warming and environmental questions more broadly require new technologies and sources of energy. Companies can respond to this problem by conceiving innovative solutions for reducing CO2 emissions, or by disrupting existing market structures. It has been shown that investment opportunities that incorporate environmental, social and governance (ESG) criteria can yield returns, so that is something we look for.
Energy transition is a focal point to the need for greater sustainability and there are three main sub-themes:
- Renewable energy (production)
- Energy technology and efficiency
- Energy infrastructure and storage
In addition, the demand for energy, food and water is set to grow significantly over the next 20 years as the global population increases. Meeting this demand while reducing carbon emissions and addressing environmental challenges creates an extraordinary investment opportunity.
THE MACRO OPPORTUNITY
Indeed, dealing with coronavirus has on the one hand served as a reminder of other global and existential problems. The global population is forecasted to grow by 2 billion to reach 9.7 billion by 2050, and population growth together with rising incomes will be increasing demand for energy, food and water by 35-50% by that year, with all the additional emissions that go with it. These issues have not gone away, COVID-19 or no COVID-19.
Source: 1. The United Nations’ 2019 Revision of World Population Prospects, June 2019. 2. Global Energy & CO2 Status Report 2018, The latest trends in energy and emissions in 2018, from International Energy Agency (IEA), March 2019
On the other hand, and that is encouraging, the pandemic has shown that it is possible to take far-reaching measures fairly quickly and to act in a coordinated, even global, way in the face of a threat. Such an approach is also needed to deal with interconnected climate issues such as demand for resources and the need for decarbonisation that will involve tens of billions of dollars.
The $29trn dollar opportunity
Source: Perspectives for the Energy Transition, Investment needs for a Low-Carbon Energy System, March 2017
GROWTH, GROWTH, GROWTH – FOR NOW AND THE FORESEEABLE FUTURE
It is important to note that there is a clear growth opportunity. While the global policy response is becoming more unified, the problem is also becoming bigger. The response has to grow accordingly.
To take an example, the global offshore wind market is set to expand significantly over the next two decades. The International Energy Agency is forecasting 13% growth per year and a 15-fold increase in capacity by 2040. This is expected to become a USD 1 trillion industry over the next two decades.1
The European Union has set hydrogen – a source of clean energy – as a key instrument for its Green Deal objectives for 2050, indicating that cumulative investments in renewable hydrogen in Europe could be up to €180-470bn ($213-556bn) by 2050.2 Separately, it is estimated that turnover in the hydrogen economy will jump to €140bn3 by 2030 from €2bn currently.
So, these are long-term opportunities and the solutions to the environmental challenges require large-scale investments: tens of billions of dollars are needed.
There is an important political event happening this year: The US presidential election in November. Should the Democrats win, we expect a significant boost for sustainable energy companies as the party is generally more environmentally friendly than the Republicans.
Looking ahead, we also expect a great deal in terms of improvement in renewable energy storage. Ever-better batteries make it possible to store sustainable energy more efficiently and for longer, which should help boost this segment’s growth.
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
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