Net-zero pledges open up infrastructure investment opportunity
Companies and institutional investors are set to see greater investment opportunities as infrastructure upgrades gather pace ahead of global pledges to meet net-zero emissions by 2050, according to an array of industry experts.
Everything from energy efficient buildings that support renewable energy to infrastructure such as poles, wires, networks and electric vehicle (EV) charging stations will need to be built as firms shift away from carbon-intensive systems, the experts said.
Companies, institutional investors and governments have made commitments to reach net-zero emissions by 2050, meaning that these institutions aim to remove the same amount of greenhouse gases released by their operations and firms they are invested in.
The United Nations has said that net-zero commitments are necessary to prevent temperatures from rising more than 1.5 degrees Celsius, a level that would have devastating effects on the climate and people across the globe.
Targets of 70% of power deriving from renewables would require a renewed push on energy efficient buildings as well as the transport sector, said Nick Langley, managing director at ClearBridge Investments, speaking at a panel discussion at the RI Japan conference held last week (May 18).
RENEWABLES INFRA
“I expect that electric vehicles will need to make up 60% of sales by 2030. That is going to require a lot of work in the energy infrastructure space, because we need to roll out electric vehicle charging infrastructure [such as poles, wires and electricity networks around the globe], which is obviously extremely expensive,” Langley said.
IFM Investors, which is owned by 26 Australian pension funds and manages A$155 billion ($120 billion), has also been investing in infrastructure to support EV charging stations along toll roads in which they own a stake.
“So there's two ways of looking at it: reducing emissions at our operations, but also how do we help our customers reduce theirs, and actually make it easier for them to transition as well. For instance, making sure we remove that range anxiety [over the distance an EV can travel with one battery charge],” Chris Newton, executive director at the fund, told the same panel.
For IFM Investors, the focus has been on “protecting and growing investment returns for investors” and making sure the infrastructure they are invested in has longevity, Newton said.
The fund owns stakes in the Brisbane Airport in Australia, Manchester Airports Group in the UK, and the Indiana Toll Road in the US.
“We want to make sure that IFM airports and toll roads can survive and thrive,” said Newton.
“The emission profile for an airport itself is actually quite small, but its customers – the airlines – have quite large [emissions]. So one of the areas that our airports are looking at is how do we help the airlines actually reduce their emissions?”
One emission-reducing tactic has been to connect planes to renewable energy sources as soon as they reach the tarmac, allowing them to turn off their engines to power systems such as the air-conditioning with renewable energy, he said.
Apart from infrastructure, investments are also needed on the technology side of things, Clearbridge’s Langley said.
“Most of the technology exists today, to get us to the targets of 2030. But for the targets of 2040 and net zero at 2050, we have a lot of innovation to be undertaken,” he said, referring to the more near-term goals several countries have committed to in order to achieve net-zero by 2050.
For instance, the EU plans to cut carbon emissions by at least 55% by 2030 compared with 1990 levels, and Australia aims to reduce greenhouse gas emissions by up to 28% below 2005 levels by 2030.
Langley noted that energy storage space, in particular, provides promising opportunities for investors.
“So battery storage, and the development of hydrogen and carbon capture technologies, these are areas where we expect significant development this decade, and to be able to get these new technologies to work in a larger scale environment,” he said.
REGULATORY SUPPORT
The panellists in general agreed that more regulatory support was needed for institutions to achieve their net zero goals.
“We've seen some emerging with Australian regulators, but also in the UK, about including climate risk, and climate spend for the capital base into new pricing frameworks.
"Water businesses, in particular, have five-year cycles of pricing. The regulators are now saying, okay, we will carve out some parts of your pricing regime for you to build into physical impact, or transition impact, as well,” Newton said.
Rebecca Mikula-Wright, executive director at the Asia Investor Group on Climate Change (AIGCC), noted that there remains a big renewable energy gap in Asia.
“India and Vietnam have been aggressively ramping up their renewables, which has been great to see. But we do have this massive gap. According to a recent report, in 2019, renewable power was only 9% of Asia's generation mix. And the science-based target initiative says that we need 70% emissions reductions to get to that 1.5 degrees target,” she told the panel.
“We recently identified through looking at a number of different studies and assessment models across the region, that the size of the opportunity from the energy sector alone is in the magnitude of $26 trillion for a 2.2 degree scenario, and $37 trillion when we look at a 1.5 degree scenario.
"This is equivalent to about 1.7 to 2% of GDP, which is actually in the range of affordability,” she said, adding that renewable power costs in Asia are cheaper to install than in developed countries, providing bigger opportunity for investors.