” We believe that many of the ‘big winners’ in the years to come will be those offering climate change solutions – products and solutions which decarbonise our economies. ”
– ARIA CAPITAL MANAGEMENT –
The energy transition broadly refers to the scaling down of fossil fuel drive energy production towards alternative means of providing energy, from renewables such as wind and solar, as well as decarbonising supply chains more generally.
In order to move towards electrons rather than atoms, that’s to say a global economy that is electrified, the ever increasing demand for energy globally will require a multitude of solutions in the ultimate energy mix – of which renewables of course play an important role.
The tide has turned inexorably and the global commitment towards decarbonisation is unprecedented. A successful transition, which in many respects means avoiding unintended consequences, (energy security issues, spikes in fossil fuel prices and power interruptions), will require not just innovation but a tidal wave on investment into promising technologies, as well as those which are already with us.
GLOBAL GROWTH DOESN’T NEED TO COST THE EARTH
Climate risks are now generally well recognised. However, climate opportunities perhaps less so – where the last few years have been dominated by social media and technology platform companies, we believe that many of the ‘big winners’ in the years to come will be those offering climate change solutions – products and solutions which decarbonise our economies.
The energy transition seeks to reduce energy related greenhouse gas emissions through carbon mitigation and even outright removal. Many renewables technologies, once dependent on government subsidies to be profitable concerns, now offer powerful, reliable and cost effective sources of electricity. In fact the cost of solar and wind generated electricity in many parts of the world is now lower than traditional fossil fuel generated power.
The investing opportunities which result from such a collossal global movement are vast – and now in many respects should be considered mainstream. The economics of low carbon opportunities are even drawing the oil majors into decarbonised sources of energy supply.
Every decade has its structural mega investing trends – 2000 and the TMT boom, 2000-2010 being a commodity supercycle and then software as service companies in the interim. The 2020’s are likely to see many companies associated with decarbonising the global economy outperform as a structurally underpinned thematic.
CLIMATE SAFE FUTURE
Measurement against the United Nations SDGs forms part of our impact assessment. We target positive contributions against at least 3 SDGs for each investment. Details of our SGD impact will on each project we finance or investment we make forms part of our investor reporting.
INCORPORATING UN SUSTAINABLE DEVELOPMENT GOALS
IRENA’s World energy transitions outlook identifies six technological means by which the world achieves ‘net zero’, in line with those goals set by the Paris Agreement.
Electrification and energy efficiencies play a pivotal role in acheiving the 1.5 degree roadmap, with biomass, hydrogen and renewables also accelerating the global energy transition.
Efficiency gains in reducing carbon emissions will be critical to the successful phasing out of fossil fuels, in order to halve very ambition emissions targets by 2030.
Matters are complicated by ensuring the transition is fare for all. Carbon taxes will increasingly occupy the political agenda to ensure the reduction in commodities such as coal powered electricity doesn’t increase prices for power for those who are least well positioned to afford it. International co-operation is required to ensure a just and fair transition for everybody, not just the highly developed economies of the West. Too rapid a transition may exercebate inequalities and leave many behind.
In order to limit emissions to 1.5 C per year, it is calculated it will require 5.7trn USD of investments per annum until 2030. ARIA will very much be playing its part by offering a suite of climate related products that invest in the most promising of opportunities with highly attractive carbon economics as we see them.
Meanginful investing products not just target economic gain, (although we are staunch in our commitment to build the highest performing portfolios), but also pioneering ones which can be seen to make a very tangible contribution to the transition – including investing in high quality nature based offsets which transparently and directly remove carbon from the environment.
THE LOW HANGING FRUIT HAS ALREADY BEEN PICKED
We believe that many of the more ‘obvious’ investments have already been made and in many respects are now quite expensive in valuation terms. Our Global Impact Income Fund, looks for the next generation of opportunities, or those companies who have commercialised technologically advances climate mitigation solutions but are yet to be uncovered by the largest insitutional investors.
INVESTMENT IN ENERGY SUPPLIES AND TECHNOLOGY
Our updated tracking, across all sectors, technologies and regions, suggests that world energy investment is set to rise over 8% in 2022 to reach a total of USD 2.4 trillion, well above pre-Covid levels. Investment is increasing in all parts of the energy sector, but the main boost in recent years has come from the power sector – mainly in renewables and grids – and from increased spending on end-use efficiency.
This is why the ARIA Global Income Impact Fund is currently positioned in US power transmission companies for its fixed income exposure – companies which are well placed to benefit from the massive investment in the electricity grid in the US needed to transmit all the power generated by an electrified society.
