The Race to Net #Zero: Investment Opportunities in a World Committed to Zero Emissions

29/06/2021
power-plant-and-wind-turbines

2020 was an exciting year for energy transition investments but as the world races towards net #Zero emissions targets, we are only at the start of a long-term structural shift in the energy system. This means that right now is a very interesting time to be investing in this space, Alex Monk, Portfolio Manager, Global Resource Equities, told the audience on day one of Schroders’ flagship investment conference for clients across the Asia Pacific region#.

The need to reduce global emissions to limit climate change is a key priority for many governments. The entire value chain for how energy is generated, stored, distributed and used will need to be radically transformed, and there is significant need for investment spend in this space to accelerate and increase. This will result in tremendous opportunities for investors across different industries and sectors. 

One key area of transitioning the energy system to net zero emissions is to invest in technological solutions that will help economies and societies adjust to infrastructure that is based on clean and reliable electricity, rather than fossil fuels.

Alex Monk said:

“There are three key structural pillars in the transition of our energy system to net zero emissions.

“The first is the decarbonisation of power. Renewables are currently around 20% of the overall energy mix today, and this needs to get closer to 85% by 2050. This is going to create opportunities for utility companies building out new renewable assets. It is also a great opportunity for companies providing the equipment, such as wind turbines and solar panels, as well as those that are involved in the broader infrastructure such as cables connecting offshore wind farms to energy grids.

“The second is the electrification of energy. Renewables produce electricity, but electricity is only 20% of all the energy people consume today. To maximise the benefits of renewables, we need to increase the amount of electricity use to 50% by 2050. One of the best ways to get to a more electrified energy system is by using things like electric vehicles (EV). In fact, over the course of a year, one EV on average uses as much electricity as a house.

“The final pillar is increasing the efficiency of energy consumption. Currently, a huge amount of energy is wasted producing and transporting energy in far flung locations. By producing energy or building storage facilities at the point of use and implementing smart technologies to manage energy consumption, we can massively reduce the energy intensity of the economy.

“Therefore, when we think about the energy transition opportunity, we should think about investing across the entire value chain. Clean energy generation is only part of it.”

Having an active and systematic investment approach can help investors gain exposure to the full scope and diversity of the energy transition opportunity. Passive indices are typically only focused on one or two sub-sectors, which means that investors could end up concentrated in a particular space. An active approach also provides investors with the flexibility to move across different sub-sectors when opportunities arise.

Alex Monk concluded:

“The long-term investment outlook for energy transition is positive due to rising policy support, improving cost benefits, and growing consumer demand. These three forces together create a powerful environment for companies looking to deploy capital in this space and grow earnings and cash flows that can ultimately flow back to shareholders over the long-term. There are still near-term risks, particularly around supply chains and inflation, but valuations across the space are looking very reasonable with a long-term view. We believe that a focused thematic approach with a disciplined investment process and takes broader sustainability concerns at heart is absolutely key to capturing the growing investment opportunities in energy transition.”

#On 29 and 30 June 2021, Schroders engaged financial industry professionals and business leaders at its flagship investment conference for clients across Asia Pacific to discuss the potential levers investors can pull to drive sustainable investments in #TheZero environment – whether it is in the interest rate policy, return on traditional income investments, the rising urgency to reach net zero emissions, or in a world where zero action means zero results.

A diverse line-up of thought leaders discussed a range of topics, from the role that policy makers and investment managers play, to exploring new investment themes and solutions that have opened up for investors in the dynamic age of #TheZero, with a particular focus on private markets, income investing, China, thematic investing, energy transition and climate change.

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