One of the greatest challenges is that we cannot always simply put ‘planet’ before ‘people’
As the world begins to work together to tackle the immense task of a transition to net zero, all the evidence suggests we are at the start of a disorderly changeover to a future powered by cleaner energy.
One of the greatest challenges we face is that decarbonisation of high emitters takes time, and these companies cannot change overnight. They are capital-intensive, with fixed assets and established business models that need to evolve, and in most cases new technologies will be required to help them decarbonise. In certain countries social issues such as employment take precedence over environmental considerations, as is the case here in SA. We cannot always simply put “planet” before “people”.
As credibility builds and the investment industry learns to assess transition plans we expect asset owners to become increasingly comfortable with adopting transition-based climate strategies. The highest-emitting companies and industries require investors who can own them, challenge them on the credibility of their plans, and hold them to account over time as they evolve.
The lower cost and flexibility of debt markets support innovation and, crucially, the ability to link lending to transition-related goals and targets. Debt will also be the most effective tool to mobilise private capital from wealthy nations towards emerging markets, where the bulk of emissions growth needs to be dealt with.
Conversely, companies in these emissions-intensive areas that prove unable to evolve are likely to face an increasing struggle to access capital and attract lower market multiples. This should present considerable opportunities for active managers seeking to generate alpha, as winners and losers diverge sharply over the coming years.
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