ESG Investing : Everything you need to know

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Governments around the globe, including major economies like the US and China, are setting ambitious targets to reduce their carbon emissions and transition to net zero. Underpinning many of these targets is the 2015 Paris Agreement and its goal to limit global warming.

Keep rise in mean global temperature to below 2°C above pre-industrial levels.

But this shift is a monumental task, requiring massive changes to infrastructure and regulations. The good news is that clean energy costs have declined substantially over the last 10 years.

• -82% Solar photovoltaics¹
•  39% Onshore wind¹
• -29% Offshore wind¹
  
  

The private sector will continue to be the major source of investment in these technologies, and there are many areas being developed where investors could see potential returns.

US$1.8 trillion invested in renewable energy between 2013 and 2018.²

Let’s start with energy storage. When the wind drops and the sun goes down, storing clean energy to ensure a constant supply is essential. In 2021, Moss Landing Power Plant, built in California in 1950, was reborn as the world’s largest battery energy storage system, feeding electricity back to the grid when energy isn’t being produced. Other countries are now following suit.

US$964 billion projected investment in global energy storage between 2020 and 2050.³

But batteries are not without their problems. Lithium is a finite natural resource, and mining it is an energy-intensive process that harms the environment too, using water and chemicals and leading to loss of biodiversity. Lithium can be recycled, but that’s not easy either, so governments are laying out recycling policies and encouraging research in this area.

Gravity can also be used to store and release energy, from traditional methods like pumped-storage hydroelectricity to more radical solutions involving huge multi-tonne blocks that are lifted and dropped by cranes. Innovators in this space make it ripe for possible investment.

There are some sectors where the use of clean energy and large batteries may be impractical, including heavy industry and the transportation sector.

Hydrogen is one solution, but it still relies predominantly on fossil fuels for its production. It can be made in other ways, however, such as by electrolysis, and if renewable energy sources are used, it essentially becomes ‘green hydrogen’. With the growth in renewable energy this is becoming an ever more viable option.

US$165 billion projected European investment in green hydrogen by 2030.⁴

Wherever our energy comes from in the future, it’s going to need an upgraded power grid to avoid bottlenecks in supply as populations and demand grow. But what if these grids were all connected too, like a ‘global energy grid’? Countries that produce excess energy from renewable sources could export it to others that don’t, providing big opportunities for developing economies.

US$14 trillion projected investment in global grid between 2020 and 2050.⁵

Whatever we do to reduce our carbon emissions, we will still be emitting millions of tonnes of it into the atmosphere every year for decades to come. That’s why carbon capture is another key part of reducing climate change.

Direct Air Capture devices pull in atmospheric air and extract the carbon dioxide, returning the remaining air to the environment – replicating what plants do but much faster. However, it’s energy intensive and a lot of renewable energy needs to be consumed for the process to be truly ‘carbon free’. The race is on to find ways to store or use this carbon without harming the planet.

40 million tonnes of carbon dioxide can currently be captured each year.⁶

A small company in Switzerland has developed technology that extracts carbon dioxide from the air and stores it underground using a mineralization process developed in Iceland. They are essentially transforming carbon into stone, which can remain stable for thousands of years.

No one knows which technologies will become the new standards for clean energy production. But we do know that this sector offers huge growth potential, and many opportunities will open up for investors.

We’re excited about exploring these new possibilities and are ready to be your partner on the journey towards net zero.

¹ Source: IRENA, 2019. Period covered: 2010-2019.

² Source: IRENA, Global landscape of renewable energy finance 2020.

³ Bloomberg NEF as at 14 December 2020.

⁴ Source: IHS Markit as at 4 June 2021.

⁵ Source: Bloomberg NEF, Power Grid Long-Term Outlook 2021.

⁶ Source: IEA, CCUS in clean energy transitions.

Risk warnings

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

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