How Decarbonisation is Powering New Investment

With Australian businesses devoting more time and resources to finding new ways to reduce their carbon footprint ― and the investment community poised to provide financial support, there are some pivotal industry developments already making waves on the investment horizon.

E&P Financial Group’s Director of ESG, Will Hart, says with decarbonisation set to dominate the commercial landscape in the coming years, this may pose a threat to some sectors, but there will also be substantial opportunities for others, due to the scale of the transition already well underway.

According to the International Energy Agency (IEA)*, an estimated $US50 trillion is set to be invested to achieve zero net emissions by 2050, involving incremental investment of $US1-2 trillion per year.

“Achieving net zero will require a combination of carbon pricing, consumption changes, and technology development and deployment, with businesses already preparing. So, for companies who have the capability to disrupt – and particularly those with an already climate-conscious approach ― the level of investment required to reach net-zero could represent significant revenue opportunities.” he says.

Why clean energy counts

The transition to clean energy has well and truly begun. Even without government mandates, the economics of solar cells, wind and batteries is already leading to the displacement of fossil fuels.
Hart states: “There’s still a long way to go – but that’s exciting for both the companies in the space and the consumer, who can look to eventually benefit with the prospect of lower prices.”
The IEA assumes solar growth of 16 per cent per year over the next 20 years which will see solar reach 30 per cent of total generation by 2040.
“The market has consistently been too conservative on renewable energy growth estimations. With the cost of solar generation having already fallen by 80 per cent since 2009, we believe the potential for renewables to supplant other sources of energy generation is currently underestimated.” adds Hart.

Transportation’s tipping point

Electric vehicles (EVs) marked the first phase of transportation disruption and is now at a tipping point where adoption could rapidly escalate from here, says Hart.
Historically, the take-up of key new technologies has expanded dramatically once adoption levels pass 10 per cent. For example, the adoption of colour TV, internet and mobile phones by US households all moved from 10 per cent to 50 per cent in less than 10 years.
Assuming a similar trend, EVs could have the same bulging demand, particularly as costs fall ― with the main constraint being the supply of important components and materials.
“The second phase that is a little further out will be the reshaping of transport as autonomous vehicles redefine the landscape for urban commuting. Modifying much of the transportation system to be both electric and ‘transport as a service’ should improve resource utilisation significantly – reducing energy demand by as much as 80 per cent and sector emissions by over 90 per cent.” Hart says.

The food production revolution

A revolution in food production is about to start, with a process known as precision fermentation set to transform the food and agriculture sectors and offer major environmental benefits, says Hart.
“Prevision fermentation involves programming micro-organisms to create any organic compound, including protein, fat, carbohydrate and vitamins. This means natural foods can be replicated in a relatively simple process but with fewer safety risks and much less environmental impact.” he says.
Hart says this is ground-breaking and opens up an enormous number of new possibilities for the industry.
“Currently, milk and ground beef look most vulnerable to the widespread adoption of this process, which could dramatically alter the economics of cattle production. However, for this reason, the social and political impacts are significant and will need to be considered as the technology continues to evolve and costs fall.” he says.

These are just three areas to monitor. We will continue to look for opportunities across the investment universe as they arise.