Moderator: Philip Biber, Sionic Expert: Rick Lacaille, State Street
Real economy effects vs. Portfolio effects.
If net zero is to be achieved by 2050, this will be a period of great growth as well as innovation. It will be difficult to choose the winners who will both change the economy as well make money for the investor.
Impact investing, especially amongst the younger clients, but not limited to climate change. Areas such as education are also areas that are gathering more and more interest.
Preparing for green surges and bubbles
Very much like the 19th century, the green investment journey will be fraught with many booms and busts. Things are moving quickly and there will be winners and losers in this new market. Investing green may be the right things to do but it does not guarantee good returns.
There will be a huge influx of capital while the world goes toward net zero and this will engender periods of surge and bubbles
Transition finance and other “dirty” opportunities
Although the emphasis is currently to invest in green companies, there will be many opportunities to make money on “dirty businesses” such as oil companies as they work to clean up their own industries and branch out into different feels. This is an area to watch carefully as time evolves.
There is also a view, that this sort of investment more impactful on the economy in that it helps clean up areas that are “dirty” instead of businesses that create little or no “dirt”.
Areas to clean up would include fossil fuels, cement and steel. In order to explain this to clients, it must be stressed that pure green investment is necessary but just as important the investment in cleaning up the industry.
Opportunities in the emerging markets
Currently emerging markets appear to be quite cheap. This being said, most of these markets are in, or about to enter, a very energy intensive period of their growth. This will mitigate the appetite to invest in emerging markets because of the difficulty of weighing return versus being green.
In order to re-tool their energy, it will necessitate a great deal of foreign capital to do so. This could give rise to carbon borders which will eventually lead to the end of globalization.
- A clear, regulated approach to measuring and communicating net zero targets, approaches and success are required to dispel concerns of greenwashing and help investors engage with companies in a meaningful way
- With more robust, true and fair metrics, we can move from the more qualitative and varied approaches currently employed
- The industry needs to play a leading role in influencing the development of these to ensure that the end investors’ needs and criteria are incorporated