The role of investment in restoring our planet

22nd April 2021

The arrival of Earth Day today coincides with disturbing news from the UN’s World Meteorological Organisation that the effects of climate change are relentlessly intensifying. In 2020, the global temperature was 1.28C higher than pre-industrial conditions and the effects are de-stabilising the world as we know it. In the face of this, how can we ‘restore the earth’, which is the theme of this year’s Earth Day? Below, Gaby Amiel, Sennen CEO and co-founder, considers the role of investment in making the structural shift that is needed.

Financial markets speed up change. They remove capital from sectors in decline and allocate it to growth sectors. They are central to enabling change and there has never been a more urgent transition to be made than the one we face now – removing investment from fossil fuels and transferring it to renewable technologies and associated infrastructure.

Time is running out to achieve the 1.5°C Paris Agreement goal. All the evidence shows that the gap between where we are and where we need to be is actually widening, not decreasing. We have around 10 years to deliver a 45% emissions reduction. This is going to require a speed and scale of deployment of new technologies that has never been seen before.

There are signs that things are moving in the right direction. In 2020, investors were enthusiastic about the opportunity presented by renewables. The S&P Clean Energy Index of clean energy stocks was up by 138% compared to the fossil fuel-heavy S&P Energy Index which was down by 37%. In the first quarter of 2021, the figures are less dramatic but show a similar trend.

But research from the International Renewable Energy Agency (IRENA), published in its World Energy Transitions report last month, states that global energy transition investment will have to increase by more than 30% above planned investment to a total of USD 131 trillion between now and 2050.

This high upfront investment is crucial to accelerate deployment of key renewable technologies, such as wind and solar PV in the power sector, but also massive scale-up of electrification of transport and heat systems and associated infrastructure.

Here in the UK, the Government has just announced that it will bring forward its current target for a 78% emissions cut by 15 years to 2035, accepting the advice of the Climate Change Committee (CCC). The CCC also states that low carbon investment must scale up to £50bn a year in the UK.

These are admirable commitments requiring a complete system overhaul. This scale of change can’t be left to markets alone. Co-ordinated Government action is needed across multiple domestic levels as well as internationally to make rules that enable this to happen.

Covid presents us with an opportunity to tear up, or at least heavily edit, the rule book. Stimulus packages and recovery measures must have the green economy at their core, and industry bailouts should be conditional on measurable climate action.

This is desperately needed. Although renewables are set for their biggest ever share of power generation in 2021, there has been a significant and worrying bounce back in demand for coal-fired energy generation led by China and other Asian markets as countries look to recover from Covid.

On the plus side, the pandemic has shown that the myths around the reliability of systems are exactly that – myths. Shares in solar and wind have been consistently high, and renewable energy sources were a preferred option, particularly early on in the pandemic, thanks to their low operating costs. The long term economic opportunity presented by renewables is also significant. For each million dollars spent, energy transition technologies create nearly three times more jobs than fossil fuels.

The economic viability of renewables is proven and the investment appetite is significant. Innovative policies, global co-ordination and a structural post-pandemic re-set is now required if we are to stand a chance of keeping to the 1.5C path.

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