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Climate Assets monthly update: There's still hope

Date: 20 July 2022

It has been a difficult start to the year for sustainable investors with headwinds from rising interest rates and during this period it has often felt that oil has been the only game in town. However, I wanted to highlight the positives of the sustainability sector and the pleasing trends we are seeing, a light at the end of the tunnel, if you will.

The annual growth rate in clean energy investment has risen to 12% since 2020, compared to an average of 2% for the five years prior, an astounding sixfold increase. Solar PV makes up almost half of this investment due to its relative low cost versus coal and gas, a favourable dynamic that has been exaggerated further by recent events which have resulted in exceptionally high energy prices. The momentum behind not only solar but other green technologies, such as green hydrogen, has been reinforced by Russia’s invasion of Ukraine. Although the world’s oil and gas producers are set to double their net income this year due to higher prices, investment in the energy remains below the levels seen prior to the pandemic. We will see if this lasts as higher prices may attract investment as well as countries’ desire for energy security and independence.

Energy Security Strategy

In the UK we have an Energy Security Strategy as of April this year which targets a fully decarbonised electricity system by 2035. This is quite an incredible commitment given that in Q1 this year 45.5% of electricity in the UK was generated by renewables but it should be noted, as with COP 26, that these targets are steps in the right direction. Triton Knoll, the offshore wind farm off the east coast of England, completed in January this year, is one of the largest wind farms in the world and 800,000 UK households can be supplied annually from the electricity generated. There are also larger wind farms under construction and due to be completed over the next three years.

Developed governments like ours are the drivers of change and the shift to renewables is responsible for more than 90% of renewable stimulus spending. Clean energy investment in emerging and developing countries (excluding China), however, remains stuck at 2015 levels.

Spending on clean energy projects will mostly come from governments as public funds are scarce in the region

Spending on clean energy projects will mostly come from governments as public funds are scarce in the region, meaning a negative economic outlook reduces government’s ability to spend on green infrastructure. Earlier this year India ordered more than 5,000 electric busses for five major cities, but they are also looking to increase their domestic supply of coal this year due to unexpected demand, further highlighting a trend that needs addressing.

If you are interested, more information on the UK’s energy trends can be found at Energy Trends June 2022 (publishing.service.gov.uk) and information on 2022 World Energy Investment can be found at World Energy Investment 2022 (windows.net).

Absolute investment may still be modest, but growth rates are high showing that sustainability is one of the strongest investment trends of our generation.

Author

Harry Gibbon

Trainee Investment Manager
I work with Claudia Quiroz and Caroline Langley. I have now been promoted to a Trainee Investment Manager and assist with the management of clients’ portfolios for private clients, pensions, trusts, charities and funds, including the Climate Assets and the Libero Balanced Funds.

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