sustainable investment
What sustainability news mattered to investors in January?
What major sustainability news from the policy, corporate and financial worlds in recent weeks mattered to investors? Here we provide a digest, with highlights including:
• a report showing how rising methane levels pushed global temperatures last year toward the highest on record
• an analysis of how Chinese companies are attempting to lead the way in developing hydrogen
• research showing how banks earned more in 2021 from arranging green-related bond sales and loans than they did from helping fossil-fuel companies raise money.
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1. Increased atmospheric methane levels helped push global temperatures in 2021 close to the highest ever recorded, according to the EU’s Copernicus Climate Change Service. A January report showed that last year was the fifth-warmest of the 52 recorded. The last seven rank as the hottest, and all but one of the 22 warmest years have occurred since 2000. The average concentration of CO2 in the atmosphere is 50% higher than in the pre-industrial era, making decarbonisation a critical investment theme. What’s LOIM’s approach? Hubert Keller, Senior Managing Partner of Lombard Odier, explains how we are rethinking net zero in this video.
2. Energy-efficiency trends are expected to return to the 10-year average after the worst year in a decade. However, the rate of improvement still needs to double to meet targets outlined in the IEA Net Zero Emissions by 2050 roadmap. The year 2020 was one of the worst ever for efficiency gains, as technical enhancements slowed and economic activity shifted away from services like hospitality and tourism that are less energy-intensive. To learn about our forward-looking way of assessing decarbonisation by companies, click here.
3. The Biden administration proposed changes to the US oil and gas leasing programme in November, including hiking fees on drilling companies for the first time in a century. The report recommended an overhaul of rents and royalty fees charged for drilling on land and offshore, noting that the government lost up to USD 12.4 billion in revenue from drilling on federal lands from 2010 through 2019. Some environmentalists want the government to consider the climate impact of drilling when it weighs approval of new leases.
4. Boris Johnson confirmed mandatory electric-vehicle (EV) charging points for new buildings in England. Starting from 2022, all new homes and workplaces will need to have EV charging points, the prime minister said in a November speech. To support SMEs in meeting the requirements, a new three-year loan programme with GBP 150 million of funding will operate through Innovate UK. The government estimates that the new requirement will prompt the installation of up to 145,000 additional charging points each year until 2030, when the national ban on new petrol and diesel car sales takes effect. Interested in learning more about EVs? Read our case study on Volkswagen, an ‘ice cube’ helping to cool the autos sector.
5. Australia’s accelerating energy transition will see half of all homes installed with rooftop solar panels in the early 2030s. About 14 GW of generation capacity using coal could be retired by the end of the decade. That compares with the 5.4 GW of closures currently announced, the Australian Energy Market Operator (AEMO) said in December. More than half of homes connected to the national electricity market will have rooftop solar panels installed by 2032, up from the current 30%, and the portion will reach 65% by 2050, according to AEMO’s plan.
6. Solar prices continue to rise, but the Build Back Better plan would boost instalments 31% through 2026. For two straight quarters, trade policy uncertainty and supply chain constraints have driven solar prices up across all market segments, according to the US Solar Market Insight report released in December by the Solar Energy Industries Association and Wood Mackenzie. The report said logistical challenges and price increases in the supply chain would depress deployment over the next year, though clean energy provisions in the Biden legislation would stimulate solar market growth.
1. Chinese companies spent 10 years attempting to dominate in the move to solar power. Now they are trying to lead the way in developing hydrogen. Investments have accelerated on a bet that the market will boom as industries and consumers switch to lower carbon fuels. Chinese companies are following the same playbook used with solar -- slashing prices and production costs, increasing installations and accelerating the development of new technologies. To learn more about our predictions for the future of hydrogen and the opportunities it could present investors, click here.
2. ‘Gravity blocks’ challenge hydro, batteries for storage. The technology is described as gravity batteries that use heavy composite blocks to store and release energy, making it the ‘holy grail’ of a renewables-based energy system. It offers long-duration storage without depending on the unique geography – or large up-front investment – needed for pumped hydro. The potential for Energy Vault1’s gravity-based storage technology has attracted some of the biggest participants in decarbonisation, including Saudi Aramco. A potential USD 32 billion of projects using the system could be deployed over the next five-to-10 years, according to the Swiss company.
3. Nissan1 will invest JPY 2 trillion (USD 17.6 billion) over five years to make battery-powered cars an engine of its long-term growth. The Japanese automaker will introduce 23 models by fiscal 2030, including 15 electric vehicles (EVs). It aims for EVs to generate more than half of global sales by the end of this decade, and more than 75% of sales in Europe by 2026. The company will pilot a solid-state battery plant by 2024, aiming to produce next-generation batteries to achieve cost parity with gasoline cars.
4. Colombia is seeking to sell crude that is carbon neutral as it tests the market for ESG oil. State-controlled oil driller Ecopetrol SA1 is offering as much as 1 million barrels of oil, according to an internal document seen by Bloomberg. Future emissions will be offset with carbon credits from renewable-energy projects in Colombia. Depending on buyer interest, the producer plans to sell cargoes of carbon-neutral oil on a regular basis, according to the report. Click here for our view on why the time has come for policymakers to invest aggressively in renewable energy.
Source
1 Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document
1. For the first time since the unveiling of the Paris climate agreement in 2015, banks earned more fees arranging green-related bond sales and loans than they did helping fossil-fuel companies raise money. Research from Bloomberg New Energy Finance (BNEF) shows that banks pocketed USD 3.4 billion from green finance deals in 2021, pipping the USD 3.3 billion earned from organising funds for fossil-fuel companies. With countries representing more than 80% of global GDP pledging to cut emissions to net zero by 2050 or earlier, there has been an increase in earnings from green finance, which totalled just USD 1.9 billion in 2020. Want to learn more about green competitiveness in the global economy? Click here to read our research report in partnership with the University of Oxford.
2. Investors had poured a record USD 7.8 billion into agriculture technology deals in 2021 as of early December, amid booming demand for climate-friendly investments, food security and productivity gains. Farmers face pressure from suppliers and governments demanding reduced greenhouse gas emissions, while climate change makes weather and growing conditions less predictable. Start-ups working on agricultural biotech, including plant breeding and GM crops, received USD 976 million alone in the third quarter, according to a Bloomberg report. To read more about sustainable farming solutions, read this insight from the Portfolio Manager of our Natural Capital strategy, Alina Donets, or this Q&A with our Head of Sustainability Research, Thomas Höhne-Sparborth.
3. The market for green bonds continues to grow, with sustainability-linked securities seeing the biggest leap in issuance in 2021 as of November. They had jumped to 9% of the total from 2% in 2020, according to a report from the Financial Times. By mid-November, more than USD 80 billion of these had been issued in the year, out of a forecast green bond total of USD 740 billion. LOIM analysis shows that total sustainability-linked issuance for 2021 more than doubled the previous year’s volume to exceed USD 1.6 trillion (see figure 1). Interested to learn more on sustainability-linked securities? Read our insight on knowledge building in sustainable fixed income.
FIG 1. Record annual issuance of sustainability-linked credit instruments in 2021
Source: LOIM, Bloomberg as at January 2022.
4. A December report on finance for sustainable building addressed the growth of housing stock and the expected need for more homes in the future given the increasing population and urbanisation trends. The UN Environment Programme’s Finance Initiative (UNEP FI) report discussed how housing affects such things as energy and water consumption and carbon emissions – pointing to the need for green building finance. It offers ways to adjust lending practices to direct more credit flows to green buildings.
5. The crisis engulfing the Chinese real estate sector threatens to upend developers that borrowed billions in green debt to fund sustainable buildings. Some firms face “inevitable” default scenarios, according to a November report citing S&P Global Ratings. Chinese developers raised green bonds to fund new environmentally focused buildings in a global rush for ethical finance in recent years. The report said those projects and the debt used are now in doubt amid market contagion following China Evergrande Group1’s troubles. For more information on our views on the systemic risks surrounding China’s property sector, read our insight here.
Source
1 Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document
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