Two-fold investment key to net zero transition

Yasmine Raso

Senior Journalist

10 March 2023

A new research paper from global investment manager, Ninety One, has argued for investment in both green infrastructure and decarbonising high-emitting companies to truly achieve a long-term transition to net zero.

The paper, A disorderly transition, said it is likely new technologies will be required to assist high-emitting companies to decarbonise along with a more “coherent assessment framework” to clearly define transition opportunities.

“This is especially true of the five sectors that are responsible for more than 90% of global emissions and are essential for economic growth – power, buildings, mobility, industry, and agriculture,” Nazmeera Moola, Chief Sustainability Officer at Ninety One, said.

“These industries are central to global development. Any disruption to their output will have a significant impact on the global economy. The transition, therefore, must be as orderly as possible.

“As credibility builds and the investment industry learns to assess transition plans, we expect asset owners to become increasingly comfortable with adopting transition-based climate strategies.

“The highest-emitting companies and industries require investors who can own them, challenge them on the credibility of their plans, and hold them to account over time, as they evolve.”

Moola also highlighted how companies and industries that fail to shift their outlook and align their operations towards net zero and low-carbon “will prove Darwinian… in the medium- to long-term”.

“Companies in these economic areas that can successfully make the transition by either developing new technologies or through significant decarbonisation of key industrial processes stand to be rewarded by the market via enhanced access to debt and equity financing and higher market valuations,” she said.

“Conversely, companies in these emissions-intensive areas that are unable to evolve will experience the opposite. They will likely face an increasing struggle to access capital and to attract lower market multiples. This should present considerable opportunity for active managers seeking alpha generation, as winners and losers diverge sharply over the coming years,” the report said.

“All the more so because the starting point includes sectors and industries that trade on a very significant discount to the broad market. We expect this ̒’transition premium’ to manifest itself more clearly in the coming years.”