Planet-saving technology will bring lucrative investment opportunities

The transition from carbon-based energy to renewables will require an investment of as much as $275 trillion by 2050 — and the potential returns will be similarly outsized, says Garrett Norman, an executive director and investment specialist with J.P. Morgan Asset Management.

“If you think of the opportunity at hand, investing in the likes of Microsoft or Apple or Samsung at the beginning of the tech revolution, we see similar opportunities now in the climate space,” Norman said, speaking on the Soundbites podcast. “We need to find ways to meet energy demands in a cleaner, more sustainable way. And this is where the investment comes in.”

With the global population on track to increase by two billion people by 2050 and energy demand expected to grow by 50% by then, he said it’s clear we won’t reach the Paris Accord target of net-zero greenhouse gas emissions without dramatic breakthroughs in energy technology.

Reaching the target will also require cooperation between public and private sectors to create solutions that make financial sense.

“I see it as a good thing when altruism and capitalism can align,” he said.

Norman allowed that the challenges ahead will be uneven for both countries and companies.

Some industries — such as those heavily reliant on fossil fuels — will almost certainly face the potential of stranded assets, regulatory headwinds and higher costs. Conversely, some industries will be poised to take immediate advantage of the changing paradigm.

On the geopolitical front, Norman believes the impact of the transition will be similarly varied.

“Countries that have a highly carbon-intensive domestic economy, or that are currently large net exporters of fossil fuels, or are home to large energy companies — the likes of Russia, India, South Africa, Canada, Australia and Brazil — will experience a more difficult transition,” he said, adding that Australia and Canada have the fiscal headroom to alleviate short-term pain by taking on more debt, but Brazil, Russia, South Africa and India do not.

Norman said carbon-transition readiness can be assessed using as many as 60 factors, including scope 1, 2 and 3 emissions; management of water and waste; and the presence of physical and reputational risks. Following data disclosures is a critical piece of the puzzle.

“The data and disclosure side of things is evolving quickly,” he said. “When we launched our carbon transition U.S. strategy, [less than] 40% of companies in the Russell 1000 were disclosing their greenhouse gas emissions. That was just a few years ago. Disclosure has improved markedly with now over two-thirds of companies in the Russell 1000 disclosing greenhouse gas emissions.”

Norman believes replacing fossil fuels with clean energy technology or improving energy efficiency will not be enough to halt and reverse climate change.

“We will need carbon removal, and this has been prompting an expansion of the carbon market in which offset credits are created,” he said.

While the percentage of global emissions covered by carbon-pricing initiatives was only 5% in 2010, it’s now up to 25%. And that number continues to rise, he said.

“We expect a continued development in the carbon market’s overall growth,” he said. “And whether we’re talking about carbon taxes or carbon pricing by emissions trading systems, there will be room for a variety of schemes across the globe, and ultimately a need to align in methodology and ways to validate them, and really bring together public policy and private or corporate behaviour.”

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.