Net Zero is the new hero

15 juin 2023

Wind farm & a bright yellow field, Beverley, Yorkshire, UK.

Sustainability has become an increasingly influential factor in the investment landscape. More and more consumers are demanding green products and services. Governments worldwide are legislating to cut greenhouse gas emissions and allocate large investments to manage climate change. As a result, companies related to circularity, clean energy, energy efficiency, decarbonization and sustainable infrastructure have experienced strong tailwinds.

Recently, we attended Carnegie’s first annual Renewables Cleantech Seminar in Copenhagen. About 100 investors and 25 companies participated. “Net Zero” was the talk of the town. 

“Net Zero” in the context of sustainability means achieving a balance between the amount of greenhouse gas emissions produced and those removed from the atmosphere to reduce global warming.

Countries committed to Net Zero 

Over 100 countries have committed to net-zero emissions by 2050, including all G7 nations, and China by 2060. A few countries even set targets ahead of time. For example, Finland pledged by 2035, Austria and Iceland by 2040, and Germany and Sweden by 2045.  

Main methods to achieve Net Zero  

  1. Removal of carbon from the atmosphere: e.g., planting trees, carbon capture and storage. 
  1. Improving energy efficiency in buildings: e.g., removing carbon from heating or air conditioning, improving insulation. 
  1. Electrification of transport: e.g., electric vehicles, hydrogen vehicles, light-weighting components. 
  1. Decarbonization of power: also known as renewable energy.  

More than 10 million electric cars were sold worldwide in 2022. Based on the latest IEA projections, 14 million electric cars are expected to be sold this year, accounting for 18% of the overall car market

The threats of catastrophic climate change and energy scarcity caused by Russia’s war have accelerated the focus on sustainable energy transition. Global installed renewables capacity is expected to increase by 3.6 times from 2022 to 2040. 

Global installed renewables capacity (GW, 2022-2040). 2022 total = 3,531. Other RES = 1,386. Solar = 1,227. Wind = 918. 2040: total = 12,699 (3.6x). Other RES = 1,525. Solar = 6,965. Wind = 4,209.

Source: BNEF New Energy Outlook 2022 (ETS). 

Latest legislation support 

The Inflation Reduction Act: Passed in August 2022, this Act marked the most significant action Congress has taken on clean energy and climate change in American history. The total investment of $370 billion aims to ensure that the US remains the global leader in clean energy technology, manufacturing and innovation. 

Net-Zero Industry Act: In April 2023, the European Commission proposed the Act to scale up manufacturing of clean technologies in the EU and make sure the EU is well-equipped for the clean-energy transition. These clean technologies include wind turbines, heat pumps, solar panels, renewable hydrogen and CO2 storage. The goal is to have the EU’s overall net-zero technologies manufacturing capacity approach or reach at least 40% of the EU’s deployment needs by 2030

On March 30, 2023, the European Parliament and the Council reached a provisional agreement to raise the binding renewable energy target to at least 42.5% by 2030, compared to 21.8% in 2019. It also aims to cut greenhouse gas emissions by at least 55% (compared to 1990) by 2030

Global clean energy investment 

Global clean energy investment is expected to rise above USD2 trillion a year by 2030, a 50% increase from today. 

Annual clean energy investment in the Stated Policies Scenario, 2015-2030 

Bar chart showing steady increases from 2015 to 2021, with projected increases in 2030 to be even more significant.

Source: International Energy Agency’s World Energy Outlook 2022.  

At the corporate level, some holdings in our portfolios from a variety of industries have also committed to Net Zero targets by 2050. Below are just a few examples. 

  • Asics: global leader in sporting goods and equipment. 
  • Aurubis: largest copper recycler in the world and the largest copper producer in Europe. 
  • L’Occitane: global manufacturer, marketer and retailer of organic and natural skincare and beauty products. 
  • Melia Hotels: the third-largest hotel group in Europe and the second largest in Latin America. 
  • Salmar: leading salmon producer in the world. 
  • DMG Mori: the world’s largest machine tool company.  

DMG Mori’s pioneer achievement towards Net Zero is worth mentioning here. By 2021, it had already achieved carbon neutrality throughout its production process worldwide, from parts procurement to product shipment. It has invested in internationally certified and sustainable climate projects for carbon offset. All its machines marked “GREENMACHINE” are carbon natural. Its GREENMACHINE is a big differentiator from peers and helps the company gain market share. DMG Mori has been awarded the Platinum Medal in the Sustainability Rating by EcoVadis, which means that it is among the top 1% of over 35,000 companies evaluated worldwide. 

Carbon offsetting at Global Alpha

Attending investment conferences and conducting company visits are important parts of our investment process. However, we are conscious of the environmental impact and always try to minimize unnecessary flights and conduct virtual meetings if sufficient. Since 2021, we have been offsetting our corporate travel emission footprint with Ostrom Climate Solutions, Canada’s leading carbon management firm. In 2022 we supported the Great Bear Carbon Forest Project, a coastal temperate rainforest, one of the rarest ecosystems on Earth.   

We will publish our 2022 Responsible Investment Report soon, which highlights our recent ESG initiatives. Our investment approach considers various factors, including sustainability as we strive to mitigate risks and generate attractive risk-adjusted returns for our clients. 

Gestion d’actifs Global Alpha Ltée
juin 15th, 2023