Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
GHG emissions reach new record high
Emissions of carbon dioxide and other greenhouse gases (GHG) struck a record level in 2021, with emissions rising across all sectors after the drop in 2020 during the Covid-19 pandemic. While that is the bad news, the good news is that more institutional investors are adopting investment policies to combat climate change.
As this chart from the IMF shows, annual global greenhouse gas emissions jumped 6.4 per cent in 2021 from 2020 levels to reach a record level as global economic activity resumed. Emissions of carbon dioxide and other greenhouse gases had plunged 4.6 per cent in 2020, as lockdowns in the first half of the year restricted global mobility and halted economic activity.
Emissions from the manufacturing and the electricity supply sectors contributed the most to recent global increases based on information from the IMF’s Climate Change Indicators Dashboard, a joint effort among national and international statistical organisations to provide data to monitor the transition to lower carbon use.
While total emissions climbed significantly above pre-pandemic levels, increases from transportation and households were more muted last year as the pandemic weighed on global mobility. The public health policy measures in many countries drove-down the emissions of households and of the electricity sector.
Energy-related emissions jump
Energy-related global carbon dioxide emissions jumped 6 per cent in 2021 to 36.3 billion tonnes, according to new this analysis from the International Energy Agency (IEA). Carbon dioxide accounts for the largest percentage of GHG (around 80%), followed by methane (10%), nitrous oxide (7%), and other greenhouse gases (3%).
The 6 per cent increase in any energy-related CO2 emissions in 2021 was in line with the jump in global economic output of 5.9 per cent. This represents the strongest coupling of CO2 emissions with gross domestic product (GDP) growth since 2010, when global emissions rebounded by 6.2% while economic output grew by 5.1 per cent as the world emerged from the Global Financial Crisis, the IEA said.
The increase in global CO2 emissions of over 2 billion tonnes was the largest in history in absolute terms, more than offsetting the previous year’s pandemic-induced decline, the IEA said. The recovery of energy demand in 2021 was compounded by adverse weather and energy market conditions – notably the spikes in natural gas prices – which led to more coal being burned despite renewable power generation registering its largest ever growth.
But the good news is that even with the rebound in coal use, renewable energy sources and nuclear power provided a higher share of global electricity generation than coal in 2021. Renewables-based generation reached an all-time high, exceeding 8 000 terawatt-hours (TWh) in 2021, a record 500 TWh above its 2020 level. Output from wind and solar PV increased by 270 TWh and 170 TWh, respectively.
The Intergovernmental Panel on Climate Change has said that limiting atmospheric warming to the key level of around 1.5 degrees Celsius above pre-industrial levels requires global greenhouse gas emissions to peak by 2025 at the latest. The new data from the climate dashboard underscore what some scientists have warned: time is running out.
Role of Investors
Investors are increasingly adopting climate-friendly policies to not only minimise their own carbon footprint but also to encourage companies to minimise their carbon emissions. Global fund manager Robeco’s Global Climate Survey 2022 reveals that climate change has become a key issue for most institutional investors. The survey gauged the action of around 300 large investors across the globe, representing approximately US$23.7 trillion in assets under management (AUM).
Approximately one-quarter of investors (24 per cent) said climate change is now at the centre of their investment policy and 51 per cent say it is a significant factor. And these numbers are set to increase; in the next two years, nearly half of investors (46 per cent) say climate change will be at the centre of their investment policy while 38 per cent say it will be a significant factor (42 per cent in 2021).
Rise of thematic investing as part of investment policies
One of the key findings of the Robeco survey is the widespread adoption of thematic investing among large investors as part of their climate change investment policies. This involves investing in themes or assets specifically related to sustainability such as clean energy or green technology.
The Global Climate Survey 2022 found 70 per cent of investors are either currently implementing thematic investing as a high or core priority, while the same number are doing so as a low priority.
Impact investing, or investing with positive ESG intentions and objectives, is also increasingly in use, with 25 per cent of investors saying this is being implemented as high or core priority. These results indicate how the availability of funds and strategies offering thematic investing and impact investing have increased. The Robeco report notes that European and APAC investors are ahead of North American investors in adopting thematic investing.
