While the current US administration has made its perspective on climate change clear, climate change itself has ignored this perspective.
The US continues to suffer from extreme weather events, likely made more acute by our changing climate, while climate models continue to point to growing physical risks across the world. At the same time, the energy transition gathers pace, with renewable cost and technology trends materially shifting the energy deployment economic landscape.
Against this background, we recently travelled to New York to attend the Bloomberg New Energy Finance Summit, present some of our climate change work at the Interfaith Centre on Corporate Responsibility Annual Conference, and meet with a number of companies to discuss climate change related risks and opportunities.
The energy system is changing
The Bloomberg New Energy Summit focused on the numerous ways in which digitalisation, automation and climate change themes are converging and fundamentally reshaping the global energy system. While the effects of this convergence are increasingly evident, the pace of change and disruption is likely to increase.
- The utility sector is undergoing transformation as the costs of renewable energy deployment continue to fall, while digitalisation of the system is facilitating the rise of virtual power plants, structures that seek to use the distributed capacity of the grid to generate power from underutilised resources.
- The automotive sector is grappling with disruption stemming from the need to decarbonise power trains (likely to battery, or hydrogen propulsion technology), questions around the rise of autonomous vehicles, the role of ride-sharing/digital hailing and micro-mobility. No wonder investors continue to remain wary of auto manufacturers as investments!
- The oil and gas industry faces somewhat of an existential challenge, as demand for fossil fuels (ultimately) diminishes as the world decarbonises. Those oil and gas companies at the forefront of acknowledging this paradigm shift are considering what future business models look like and how they might implement such a transition.
Investor voices on climate change are growing
We also had the opportunity to present to other investors at the Interfaith Centre on Corporate Responsibility Annual Conference. Our presentation focused on the role of investors in driving alignment with the Paris Climate Accord and specifically the significance of aligning financial statements with the Accord. While North American companies (and perhaps investors) have not been at the forefront of the climate change engagement debate, these investors are increasingly finding their voice and pushing for more pronounced climate action.
What does this mean for global investors?
Given the convergence of several mega-themes and the magnitude of climate change as a factor, as investors, we must be increasingly considerate of the risks to orthodox business models that eventuate. This is particularly the case as climate destabilisation gathers pace, while technological innovation and learning curves steepen adoption curves. Conversely, those companies positioning themselves as leaders across the various pillars of this transition will be well placed to generate more sustainable returns.