Section 3:
Engagement outweighs divestment
The most straightforward way to achieve net-zero and profit from the transition is to invest in new renewable energy capacity. But in the coming decade the world will not be able to rely exclusively on renewables—fossil fuel use is likely to continue.
So for most investors the decision whether to divest or not is a nuanced one.
On the one hand, divestment means losing influence over the pace of transition and missing out on the opportunities of decarbonisation. On the other, maintaining the holding means exposure to carbon taxes, increasing regulation and potential litigation—plus, the difficulty of competing with cleaner energy businesses that have legislative support.
The most straightforward way to achieve net-zero and profit from the transition is to invest in new renewable energy capacity. But in the coming decade the world will not be able to rely exclusively on renewables—fossil fuel use is likely to continue.
So for most investors the decision whether to divest or not is a nuanced one.
On the one hand, divestment means losing influence over the pace of transition and missing out on the opportunities of decarbonisation. On the other, maintaining the holding means exposure to carbon taxes, increasing regulation and potential litigation—plus, the difficulty of competing with cleaner energy businesses that have legislative support.
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“We engage with emissions-intensive portfolio companies to lower their emissions instead of divesting them”
of capital providers agree
disagree
“Divestment of emissions-intensive lines of business will be a last resort for our organisation”
of corporates agree
disagree
“We engage with emissions-intensive portfolio companies to lower their emissions instead of divesting them”
of capital providers agree
disagree
“Divestment of emissions-intensive lines of business will be a last resort for our organisation”
of corporates agree
disagree
Energy companies’ plans for investment are also ambitious: 45 per cent, for instance, expect to invest in new greenfield renewable projects over the next 18 months, and 41 per cent are prioritising investment in carbon-reduction technology. Interest in investing in greenfield renewables is strongest in the Americas (50 per cent) and the Middle East and Africa (46 per cent).
“The US hasn’t really invested in infrastructure in decades,” says Annette Clayton, CEO of Schneider Electric North America. “So we’re now seeing and embarking on this unprecedented investment in US infrastructure to modernise it, to digitise it, to make it more resilient to climate impacts and to make it more sustainable. And we’re starting to see more money flow from the US government into the states, so we see this as tailwinds for our sector.”
Which energy transition-related opportunities are companies planning to pursue over the next 18 months?
Which energy transition-related opportunities are companies planning to pursue over the next 18 months?
As the need for renewables increases, there is a tremendous opportunity in that asset class
Mary Nicholson
Head of Responsible Investment | Macquarie Asset Management
As the need for renewables increases, there is a tremendous opportunity in that asset class
Mary Nicholson
Head of Responsible Investment | Macquarie Asset Management
These plans must not be seen as an alternative to cleaning up the current portfolio, but should run parallel with it. Fossil fuels are likely to remain a mainstay of energy companies’ activities for some time, but 50 per cent of companies also see potential in refurbishing their existing facilities or transforming brownfield projects to become less dependent on carbon-intensive fuels.
In the Asia-Pacific region, 65 per cent of respondents say that upgrading existing facilities and transitioning to lower-emissions fuel sources is the most significant opportunity in the next 18 months.
Meanwhile, 39 per cent of capital providers have plans to acquire renewable energy assets.
But the sheer scale of the net-zero challenge requires investment in both renewable energy and the decarbonisation of less clean sectors.
“We’re looking beyond renewable energy generation to the technology that will enable the transition,” says Mary Nicholson, Head of Responsible Investment, Macquarie Asset Management. That could be clean grids, battery storage, electric vehicles and more—they are all equally important components of the future world as clean energy generation.”
