Investment Institute
Environmental

A ministry of all talents: Exploring technologies in the fight against climate change

  • 26 August 2022 (5 min read)

  • The battle against climate change is driving ever-greater innovation
  • Electric cars, wind and solar are just some of the areas making strides
  • Investors are being presented with a growing range of opportunities – from established to emerging and fledgling technologies

Any responsible investor seeking to deliver financial returns while driving the world toward a more sustainable model will have noticed one crucial thing about climate change: It reaches into every sector, every portfolio, every asset. There is no corner of our global economy that is not affected in some way – by the associated physical risks, by the challenge of the energy transition or by the policy momentum designed to address the problem. What that means in practical terms is that the ideas designed to take us toward net zero emissions, or to mitigate the effects of climate change, lie scattered across our investment universe.

There is no way to capture the entirety of this opportunity set, at least not in the space we have here, but we can identify and explore some key technologies in three simple categories: Established, Emerging and Fledgling. Not all ideas, after all, are destined for success, making responsible investment experience and deep analysis vital when navigating this exciting space.

Established

Electric vehicles (EVs) are going to take over. The only question is when. The emergence of Tesla as a global brand has likely helped to boost the delivery of charging infrastructure that is crucial for EVs to become truly dominant. But it is perhaps the incumbent, long-time household names that best signal the direction of travel. Ford is aiming for an all-electric fleet in Europe by 2030; Jaguar has made a similar commitment from 2025.1

For investors, this momentum may allow the potential for differentiation between automakers pursuing different timelines, or to support companies involved in the innovation and manufacturing of technologies and products linked to the transition from fossil-fuel powered vehicles. There will be additional considerations too. The extraction of the materials needed to produce batteries is already raising sustainability and social issues that responsible investors will have to manage carefully. Those with an eye on broader macroeconomic effects will have to consider how different countries will address the steady loss of tax revenue from fuel duties.

Wind and solar power have emerged as the world’s renewable energy sources of choice. Installed wind capacity ballooned to 837 gigawatts (GW) in 2021 from just 24GW two decades earlier.2 Solar grew to 843GW from 1.09GW over the same period and combined they now represent more than 10% of the global energy mix for the first time.3 They have reached a scale likely to only encourage more investment as the world seeks to secure a net zero economy by 2050.

Both come with problems, however. Wind and sunshine are intermittent, and so technologies that can effectively store the energy created when conditions are right could be a game changer in terms of further reducing our reliance on fossil fuels. There may also be investment opportunities in smart tech and smart grids that can help consumers and suppliers respond to periods of scarcity or plenty in renewable energy supply. One recent issue for some wind turbine makers, meanwhile, has been the withdrawal of subsidies as demand increased. That has left many companies more exposed to the whims of markets, while China’s domestic producers may soon start to offer a dose of stiff competition globally.

Emerging

Hydrogen has long been a powerful option towards the periphery of renewable energy alternatives. It is considered dangerous in the public imagination – the graphic destruction of the Hindenburg zeppelin in 1937 has lingered long in our collective memory. Now though, it is gaining acceptance as a viable, even preferable option for certain applications. Hydrogen can potentially be a carbon-free source of electricity, fuel, raw material or energy storage capacity, but it may be tough for investors to anticipate the likely pace of adoption and how it might affect the companies involved.

Vital will be reductions in the cost of so-called ‘green hydrogen’, produced through the electrolysis of water using renewable electricity. Current thinking is that it will take about a decade to make green hydrogen truly cost-competitive,4  but the pathway is set – the International Energy Agency expects production of green hydrogen to mop up 10% of the world’s electricity by 2050 from virtually zero today.5 Renewables are therefore a potential route for investors to tap into hydrogen’s likely role in the transition, but there may also be opportunities in the companies already active in the production and logistics of hydrogen – namely industrial gas producers with know-how in managing such a complex value chain.

Bioplastics are a potential way to mitigate the effects of our reliance on packaging and other plastics uses in modern economies. Combined with pulp and paper innovations, the goal is to deliver low-impact alternatives to fossil-fuel based products. Some varieties of new bioplastics derived from natural and renewable feedstocks appear to offer comparable levels of quality and similar barrier properties to commonly used plastics like PET.

It’s not that simple, of course. Some major companies have begun touting their use of bioplastics, but any significant output growth could imply accelerated impacts on land and water use to produce sufficient raw materials. There is also the question of how these products biodegrade, with some alternatives only offering a powerful advantage over plastics when they end up in industrial composting. All of these factors may be addressed as companies improve biodegradation and experiment with a range of natural feedstocks, but the fundamental question remains whether the only real sustainable path is to focus on rapidly reducing demand for packaging products overall.

Fledgling

3D printing is associated with small-scale parts reproduction but used at scale in the construction sector it may be a promising way to reduce the industry's carbon and energy intensity – cement production alone generates about 7% of global CO2 emissions.6 Proponents argue 3D printing offers engineering options unfettered by standard design constraints and delivers low-energy, structural advantages at a time of growing urbanisation, particularly in emerging markets.

In Malawi, 3D printing has been shown to reduce CO2 emissions by nearly 70% and material waste up to tenfold, according to the World Bank.7 China and the US are key investors in the global 3D printing market, but Dubai appears to be driving its use in construction. The state-run Dubai Futures Foundation (DFF) has said 25% of Dubai’s new buildings could feasibly be 3D printed by 2025.8

Another notable project, in Jiangsu, China saw 3D printing cut labour costs and construction times for a self-insulating apartment building. The project used 132-foot-long machines in offsite factories, using traditional materials and recycled construction waste to print walls and other components.9 Investors must operate with caution – there may be improvements in environmental performance, but the technology remains energy intensive, comparatively expensive, and not yet in a position to bypass conventional construction processes.

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