By Rachel Koning Beals
A two-week U.N. climate conference in Scotland required overtime, but delegates on Saturday advanced pollution-cutting priorities though they spared the harsher restrictions for oil, gas and coal that some environmental groups and scientists believe necessary to assure hitting aggressive net-zero emissions goals in coming years.
Still, with the ball advanced, investors will smartly reassess the green energy and clean technology opportunities, as well as the adaptability of traditional fossil-fuel giants, that could shape portfolios moving forward.
“Climate action to limit global warming requires an unprecedented shift to clean technologies at scale, but will be expensive, slow and uneven,” a Bank of America Merrill Lynch thematic equity research team said in a note.
They estimate a doubling of annual investment in the global energy system alone of $5 trillion each year over the next 30 years, adding up to $150 trillion or approximately two times current global GDP.
“It can be done, but everyone will need to chip in: governments, central banks, capital markets, ESG (environmental, social and governance-themed investing), private sectors and consumers,” the analysts said.
Banks, insurers and asset managers representing some $130 trillion in holdings have pledged to align themselves with net-zero emissions goals. Their regulators are also on board, although to varying degrees, and with some political pushback. One major objective is new disclosure rules around emissions; the U.S. Securities and Exchange Commission, for example, is getting closer to rule-making on such disclosures for stocks.
Stock market analysts have said that if companies are forced to disclose their emissions, it could be a game-changer, making it easier for investors to adjust their portfolios to include climate change and sustainability themes, if they so choose.
Here are five areas for investors to consider in the wake of the U.N.’s climate announcement.
Tightening emissions targets and the green energy to get there
The Conference of Parties, or COP26, agreement says that in order to achieve the 2015 Paris accord’s ambitious goal of capping global warming at 1.5 degrees Celsius (2.7 Fahrenheit) by the end of the century compared with pre-industrial times, countries will need to make “rapid, deep and sustained reductions in global greenhouse gas emissions, including reducing global carbon dioxide emissions by 45% by 2030 relative to the 2010 level and to net zero around mid-century, as well as deep reductions in other greenhouse gases.”
Developed countries are also being asked to submit a short-term update next year.
Helen Mountford, vice president, climate and economics, with the World Resources Institute, saw mostly positive developments from her group’s point of view, and areas for growth.
“There are the right rules in place to ensure accountability and rigor in the system,” she said. “And a push to come back next year with ambition for their 2030 targets.”
Scientists say the world is not on track to meet the temperature goal yet, but these pledges will bring them closer.
The BofA researchers noted decelerating costs of clean technologies in the last decade. Already, wind has gotten 45% cheaper, with the cost of solar down 85% and batteries, such as for electric vehicles and solar storage, down 89%. Cheaper costs make these sources more competitive with natural gas /zigman2/quotes/210189548/delayed NG00 +0.12% and other sources, but their capacity is lagging. Thus, another growth opportunity.
“To decarbonize our planet, we will need 9x, 14x and 88x more capacity of wind, solar and batteries, respectively, by 2050, and even then still that can cover only half the emissions reduction,” the team said in its note.
U.S. solar and wind growth is on pace to notch records in 2022, pushed there by government incentives and private-sector demand, a report from S&P Global Market Intelligence says.
The research group expects as much as 44 gigawatts of utility-scale solar /zigman2/quotes/210041821/composite TAN +0.19% , and 27 gigawatts of wind /zigman2/quotes/202847480/composite FAN +0.99% to come online next year. For solar, the forecast is nearly double 2021′s estimated 23 gigawatts of new capacity. And for wind, 2022′s projected totals would surpass the current annual record of 16 gigawatts, set in 2020. It remains only a portion of available utility capacity, however. The U.S. has a total generating capability of about 1,200 gigawatts, according to the Public Power Association .
“If the current administration is successful in putting the U.S. on a path to 100% decarbonization of the energy sector by 2035, these record-setting projections are just the beginning,” S&P Global said of its 2022 estimates.
Morgan Stanley stock-pickers highlighted for Barron’s a few of their stocks to watch when it comes to putting climate-change solutions into action.
As for the renewable-energy space, FirstEnergy /zigman2/quotes/201870541/composite FE -0.39% and SunRun /zigman2/quotes/205021014/composite RUN -5.56% are U.S.-listed companies in the mix, while the area of energy storage brought QuantumScape /zigman2/quotes/219305490/composite QS +1.11% to mind.
The firm’s list for electric vehicles, which extends beyond passenger cars, includes familiar names and more: Tesla TSLA , NIO NIO , and Li Auto LI , TPI Composites TPIC , Schneider National SNDR , Knight-Swift Transportation KNX FREYR Battery FREY and Fisker FSR .
The BofA team says wind, solar and other renewably-sourced power won’t be enough for some industries. “Solutions to decarbonize hard-to-abate sectors such as shipping, aviation and steel are at earlier stages of development, requiring rapid development and cost reductions in green hydrogen, sustainable fuels and carbon capture, for example,” they said.
Hydrogen and nuclear
COP26 developments could be a boon for nuclear energy, said Amber Rudd, the U.K.’s former minister for energy and climate, and a delegation leader at the 2015 Paris climate conference, at a UBS conference this week.
In the U.S., nuclear and hydrogen technology tend to get bipartisan backing .