Decarbonisation opportunities will need more action from governments

Decarbonisation is expected to bring broader investment opportunities in a decade to come, however more aggressive action is needed from governments and corporations as the gap between the current promises to cut planet-warming emissions and the actual actions is growing, according to Nanuk Asset Management.

With the rapid rise in sustainable technology investments and the consistent climate volatility, the manager predicted that the current decade would see significant changes in policy towards tougher action to meet the greenhouse gas emission reduction targets that had been set for 2030.

Nanuk’s chief investment officer, Tom King, said that while there had been already a significant increase in government support for sustainable technology in 2022, led by the passing in the US of the Inflation Reduction Act and the Bipartisan Infrastructure Law, Australia’s new commitment to a 43% carbon emissions reduction on 2005 levels by 2030 added to pressure.

Also, more ambitious decarbonisation commitments would be expected to drive further increases and broader investment in decarbonisation solutions, with solar, wind, green hydrogen, energy storage and vehicle electrification stocks set for significant growth after underperformance in 2021 and 2020.

King pointed out to the growing use of technologies like renewable energy, electric vehicles and hydrogen power would help address about a third of overall global carbon emissions although that would still mean significant growth in demand for these products.

Following this, the manager also stressed that full decarbonisation of electricity generating systems, and the decarbonisation of industrial processes, heavy road and air and ocean transport would be areas of growth later this decade, providing future investment opportunities.

King also pointed to the booming of the solar industry as well as offshore wind industry and a further take up of energy storage products and electric vehicles, followed by carbon capture and storage, the decarbonisation of air and ocean transport and the adaptation of greater recycling and reuse as areas expected to see “a dramatic escalation of investors focus within the next few years”.

“You need to eliminate the use of fossil fuels in buildings, primarily for heating. You need to deal with transport other than passenger electric vehicles, like rail, air and shipping. You need to deal with the big block of emissions coming from industries like cement and steel producers. And you will need to see a greater use of carbon capture and storage by energy companies,” King said.

“As we move though this decade towards 2030, the investment market will start to react to this. It’s only a matter of a few years.

“Right now we see an increasingly interesting set of opportunities in areas like wind energy equipment makers, grid technologies like metering, component suppliers involved in vehicle electrification, and selected semiconductor companies, sectors that have underperformed this year but for which the medium term outlook has improved.

“While these areas have become better understood by the market in recent years, we think there is a much broader set of less well understood opportunities that are yet to be widely recognised.”