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2023 will see an institutional shift, including more rigorous reporting, specific expectations placed on companies to address climate risks, further addressing of human right issues, including an emphasis on diversity. Bloomberg suggests that there will be an increase in pressure on stewardship accountability as activism builds. Given the increased regulatory scrutiny in Europe over the last year we will see credible disclosure shifts, with “an increased focus on performance and regulatory scrutiny”.
Over the past few years, there has been a ‘tectonic shift in capital’, with sustainable investments now tipping over $41 trillion and expected to rise to $50 trillion over the next 2 years. By 2025, it projected that ESG assets will make up one third of the total assets under management globally. With the creation and expansion of these, we will need to come to terms with the notion of a ‘Green Premium’. An idea, that Bill Gates breaks down to the question of: what is the difference in cost between a product that involves emitting carbon and an alternative that doesn’t?
The alternatives don’t factor in the cost or implications on natural capital, and as a result, fossil fuels are artificially cheap. The smaller this price gap is, the closer we are to net-zero. Bridging this gap is path forward. With an unprecedented amount of capital ready to be invested in pathways to secure a net-zero economy, the gap is already being closed in many sectors.
This year, more firms will be evaluating how they are going to meet revised regulatory standards, investor and public demands and have ESG data ready for audits. Larry Fink, Blackrock’s CEO, reiterates this; “it has never been more essential to have a consistent voice, clear purpose and coherent strategy –from shareholders, to employees, to customers, to communities, and regulators”.
There will be greater significance paid to tracking areas of change to assist future predictions and shifts, encouraging companies to advance their ESG reports, by including short, mid and long-term carbon plans and targets. This likely not be a fast process, but rather a slow transition throughout the next several years.
Decarbonizing of the global economy will create the greatest investment opportunity for our lifetime. Campaigning for divestment in fossil fuels has been on the rise to starve fossil fuel companies and curb production, with over $40 trillion in divested assets. Unfortunately, it is not as simple as this, as experts reiterated last year, these tactics only increase the prices of oil and gas commodities in the long run, and by extension the value of the companies that are extracting it. The Harvard Business review summarises this as; “for you to divest, someone else needs to invest”.
Schalk Cloete, a research scientist, suggests that the investment shift from fossil fuels need to be done in a “much more intelligent way”. Our rapid economic development needs to find solutions to uplift the two in five people that live below $5.50 a day in poverty, along with the myriad of additional SDGs. 2023 will see an innovation push for ESG solutions, with divestment as one tool, among a broader context of tools for mitigating climate risk.
With global energy demands predicted to increase by 25-30% by 2040, green hydrogen is on the rise as an alternative to traditional fossil fuels. It facilitates the integration
of renewably produced energy, because it can be easily stored and uses renewable electrical energy to fuel the process. However, the chemical process, known as electrolysis, comes as a high production cost. The next few years will see this price fall, with more cost-effective alternatives electrolyser capabilities to create the reaction dissociation between hydrogen and oxygen. The World Hydrogen Council predicts that green hydrogen production costs will fall 50% by 2030 and could help the world meet its goal of decreasing carbon dioxide emissions by 60%.
“Capitalism has the power to shape society and act as a powerful catalyst for change”.
Given the decreased push for divestment in fossil fuels, there will be a greater emphasis on the need for innovate solutions and more investment in promising new initiatives. Forbes’ Robert Rapier, suggests portfolio diversification, don’t pull out of fossil fuels completely, rather invest in new innovations and diverse energy supplies to drive change without further increasing energy prices globally.
The next 1,000 unicorns won’t be search engines or social media sensation, but instead sustainable, scalable innovators – start-ups. Focusing on investing in companies that are at the forefront of innovation and seeking transition present vital investment opportunities, while driving capital towards these unicorns that are essential to a net-zero future.
The automobile industry has been paving the way, with manufacturers racing towards an electronic future, soon every sector will follow this path. By 2030, half of European car sales are expected to be battery electric vehicles, with the green technology and sustainability markets are projected to grow from USD 13.76 billion in 2022 to USD 51.09 billion by 2029.
The demand for electric public transport is growing. Not only has the market for personal electric vehicles grown exponentially, with 160 electric and hybrid vehicle models available today – municipalities are following suit. China already has 300,000 electric buses, with Europe quickly following. Similarly, given the hydrogen energy transition, it is predicted that more than 400 million cars run on green hydrogen by 2050.
This year will see a greater variety of carbon capturing and storage alternatives with safer, more sustainable options becoming available. A New Scientist report found that most carbon capturing and utilisation technologies that pull carbon dioxide from the air, “admit more carbon than they capture”. The report found that there are only 4 current methods that do better than harm, these technologies include plants that turn CO2 into concrete production and for oil extraction. Given the Paris Agreement targets, this year will see greater research and importance paid to long-term and effective carbon sequestering methods. To read more about effective carbon storage initiatives and future trends, read on to this insight.
Georgina Murrin is a ESG Analyst in Itriom’s London Office.
Itriom is the global impact platform helping leading families shape a better world. Itriom’s platform enables families to refresh and redesign their values, aligns them with the right UN Sustainable Development Goals, combining them in an agreed purpose and a Family Impact Charter. Itriom’s platform supports the development of impact initiatives and whilst providing discrete and secure spaces for peer-to-peer messaging and collaboration. Itriom’s core practices in Leadership, Geostrategy, and Sustainability benefit clients by developing strategies to engage and support the Next Generation in building a lasting legacy of which families can be proud.
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