Many of you may have heard of WALL-E, the 2008 Pixar film depicting a future world that is engulfed with thrash and pollution due to decades of unbridled mass consumerism. The planet has therefore become an inhabitable, desolate wasteland and humans were forced to live in space instead. WALL-E, as the main character, is the trash compactor robot that was created to clean up the planet. While the film was not meant to have a political or environmental bent at the time of production, it does foretell the immense damage that humans could potentially do to our planet. Fast forward to 2021 today, are we one step closer to the ominous scenario that this futuristic science fiction portrayed?
Over the years, human activities have had devastating effects on the environment. Think burning fossil fuels, deforestation, overpopulation, pollution – to name a few. The climate is indeed changing – and it is changing fast. The United Nations Climate Change Conference (official name for climate Conferences of the Parties, COP for short) has happened every year since 1995. These summits are held for 2 weeks as all stakeholders come together to discuss climate crisis on a global level. COP26 that ended on 13 November 2021 this year is the first major test of the 2015 Paris Agreement.
Below are several milestones that have been achieved:
- Setting a lower target to keeping global temperature to 1.5 degrees Celsius above pre-industrial levels
- To focus on targets in 2030 as opposed to longer term targets like 2050,
- Agreement to phase out the use of fossil fuel
- Increasing financial aids by developed economies to developing economies to tackle climate change.
Over 40 countries have also signed up for the Breakthrough Agenda during COP26 which will help accelerate investments in both the public and private sectors into clean energy technologies. Signatories include the major economies like the US, European Union, China and India.
This obviously has huge implications on where capital expenditures are headed. This transition towards a cleaner emission global economy by 2050, according to the International Energy Agency in June 2021, is estimated to require US$150 trillion in total investments. This obviously has investment implications as there would be a whole lot of industries that benefit from these investments. While companies that depend on coal, for example, would face massive headwinds.
Another implication for this renewed focus on the environment would be how it affects the investment community. At Lion Global Investors, we are committed to doing our part for the environment by incorporating Environmental Social & Governance (ESG) considerations into our investment process. We also employ carbon and climate change analytics for tracking of portfolios and carbon footprint. The investment community will similarly favour companies and industries that are environmentally friendly which raises the premiums for such companies.
In a report by JP Morgan in November 2021, they highlighted five industries that are undergoing transformations because of environmental considerations.
- Power: Transition from inefficient fossil fuel power generation and the supporting distribution network to renewable energy like wind and solar and its supporting infrastructure.
- Road transport: Phase out use of internal combustion vehicles and transition to zero-emission vehicles like electric vehicles with supporting infrastructure.
- Steel: Steel making uses coking coal which is polluting and therefore investments into near-zero-emissions steel plants is necessary.
- Hydrogen: Advancement in hydrogen technology has allowed hydrogen to become a form of renewable energy storage.
- Agriculture: Adoption of sustainable agriculture by 2030.
We expect wind and solar equipment makers, operators and smart grid equipment players to be beneficiaries with the transition away from coal power generation. We also see hydrogen technology as an important storage of power for renewable energy. The transition from Internal Combustion Vehicle to Electric Vehicle and Fuel Cell Electric Vehicle would also continue to be an important theme for clean transportation.
The LionGlobal Disruptive Innovation Fund invests in green energy technologies, hydrogen, batteries and electric vehicles as part of the 15 themes that the Fund has identified. These are important technologies for this multi-decade transition towards a cleaner and greener society and investors interested to participate in some of these themes may consider our LionGlobal Disruptive Innovation Fund.
Table 1: Major pledges and initiatives from COP26
Source: J.P. Morgan, COP26, the Government of the U.K. As of 16 November 2021
All the above efforts are aimed to coordinate and accelerate climate change action. To round things up, we will do well to remember that everyone, including you and I, have a role to play. In the Pixar film, Wall-E found a fledging plant in the midst of a heap of thrash. The plant symbolizes hope, and it is the source that brought humanity back to earth. No action is too insignificant, and indeed, no plant too small.
As WALL-E aptly declared in the film, “Out there is our home”.
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