Are we now on the road to net-zero?
Are we now on the road to net-zero?
Climate change and the transition from fossil fuels to sustainable energy is arguably the most pressing issue facing the world today. Addressing the issue of how the world produces and consumes energy, and the measures that need to be taken to limit the effects of global warming are now at the very top of the world’s political agenda.
The latest report by the International Energy Agency (IEA) – Net Zero by 2050: A Roadmap for the Global Energy Sector – outlines a number of recommendations for achieving net zero carbon dioxide emissions by 2050. Among these is the recommendation that no new fossil fuel boilers for heating homes should be sold from 2025. The sale of new petrol- and diesel-powered cars should also end by 2035, the report said. The report also says that from now, there is no place for new coal, oil or gas exploration or supplies.
The IEA’s roadmap to net zero carbon dioxide emissions by 2050 will require massive investments and unprecedented levels of international cooperation. The report also recommends a ramping up of renewable energy, which will drive the transformation of the sector. Renewables will account for almost 90% of energy generation by 2050, compared with 29% in 2020, the report said.
Some of the other recommendations in the report include further investment in the charging infrastructure for electric vehicles (EVs) to encourage their uptake. The number of charging points for EVs will rise from around one million today to 40 million by 2030, the IEA report said. This will require investment of $90 million per year by 2030.
We spoke to climate change specialists Simon Webber and Isabella Hervey-Bathurst for their views on the IEA’s latest report.
Simon Webber is a fund manager at Schroders specialising in climate change:
"It has been astonishing how, in the grip of a global pandemic, climate change has risen to the top of the political and corporate agenda. Important inflection points have been passed in renewable energy and EVs, where these superior technologies have become cheaper than their fossil fuel alternatives and can now be rolled out fast without the need for major government subsidies. However, valuations also rocketed in these parts of the stock market last year, and it is now in other parts of the transition to a zero-carbon economy that we have the highest conviction.
"Limiting climate change to an eventual 1.5C increase will require the decarbonisation of all industries in time, and an approximately 45% reduction in emissions by 2030. This means the revolution will also need to spread to sustainable foods, clothing, and housing, and these changes have been far less explored by investors. For example, there will need to be a significant shift towards plant-based proteins and there are several emerging companies that have built strong brands in this area.
"The European Union’s Green Deal and lots of government regulations are also set to generate a new investment cycle around the upgrading of buildings to be more energy efficient and to use low carbon sources of heating such as heat pumps. These trends are just emerging but have decades of growth ahead of them if we are to truly decarbonise the global economy."
Isabella Hervey-Bathurst is a fund manager at Schroders specialising in climate change:
"One of the most notable features of climate policy over the last couple of years has been the rise of national and supranational "net zero" targets. Countries and regions adopting these targets include Europe, the UK, China, South Korea, Japan, Canada, South Africa and several US states. Around 70% of global emissions are now covered by a net zero policy. Converting these long-term ambitions into a concrete roadmap of actions and policies is the next step, and this is why the IEA report is an important contribution to the debate.
"What the report makes clear is that deployment of the existing clean technologies needs to accelerate immediately: this is not tomorrow’s trend. The looming ‘cut off points’ for commonplace consumer goods like gas boilers and internal combustion engine passenger vehicles highlights what a stark break from the past the net zero pathway will be. This applies to the investment world too: the past will not be a good guide to the future and there will be big winners and losers from this transition."
- How sustainable are "fast fashion" businesses?
- Why companies with stronger ESG credentials should be expected to underperform…but won’t
- Sustainable Investment Report Q2 2021: active ownership and the voting season in another year of virtual AGMs
- There's More to Value than Meets the Eye
- The uneven effects of climate change on the global economy
- Could transparency be the most important enabler of sustainable investment?
This material has been issued by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473) (Schroders) for information purposes only. It is intended solely for professional investors and financial advisers and is not suitable for distribution to retail clients. The views and opinions contained herein are those of the authors as at the date of publication and are subject to change due to market and other conditions. Such views and opinions may not necessarily represent those expressed or reflected in other Schroders communications, strategies or funds. The information contained is general information only and does not take into account your objectives, financial situation or needs. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this material. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this material or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this material or any other person. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any references to securities, sectors, regions and/or countries are for illustrative purposes only. You should note that past performance is not a reliable indicator of future performance. Schroders may record and monitor telephone calls for security, training and compliance purposes.