Ed’s note: Rethinking investment


Last week I wrote about some of the trends that I believed would drive the energy transition forward. This week I’d like to touch on another that is less tangible, but perhaps as, or even more, powerful. The role of activists.

The rise of social media and a world where everyone’s voice is (or can) be heard has given rise to an extension of the ‘soapbox’ of old. This soapbox is now both digital and physical and able to get the message out to many, many more people in seconds, minutes or days, instead of weeks, months, years or decades.

And it has resulted in ‘the masses’ starting to express their displeasure when they feel institutions aren’t putting their best foot forward.

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Take the case of BlackRock and its decision to reallocate capital in response to climate change and protests outside the company’s offices. In a letter to investors last week, Larry Fink, CEO of BlackRock highlighted the responsibility the company has to promote long-term value. He highlighted the impact on economic growth and prosperity due to climate change, continuing: “..I believe we are on the edge of a fundamental reshaping of finance.”

“…Investors are… recognising that climate risk is investment risk.”

Fink related a number of changes that the investment advisory would be making, including making sustainability an integral part of portfolio construction and risk management, “exiting investment that presents a high sustainability-related risk, such as thermal coal producers; launching new investment products that screen fossil fuels…”

What does this mean for investment in the power sector? Will we see a significant shift away from the hydrocarbons and a commensurate shift of investment into renewable energy, hydrogen, electric vehicles and carbon capture and storage and biofuels? Morgan Stanley estimates that in order to address climate change, $50 trillion needs to be invested in the five technologies listed above over the next three decades.

Read other Editor’s notes here
Read more about investment in the energy sector here

Already we have seen large multilateral investors such as the World Bank and European Investment Bank shift away from funding the development of projects that have a potential impact on climate change. Increasingly, investment firms such as BlackRock will need to reassess the resilience of their investment portfolios, mitigating for the impact of climate change with the Mercer reporting that returns in the renewable energy sector could increase “by between 4% and 97% over the next ten years.”

Investors and the activists that shape public opinion will play an important role in shifting funds away from climate negative assets to those that will increasingly provide more than just a good return on investment.

Do you agree?

How will investment direction impact the utility sector? Will a global shift in investment policy positively impact utilities investing in technology to fuel the energy transition?

We’d love to hear what you think. Share your thoughts with us at editorial@smart-energy.com.

Until next week!