Let me give you two options. The first is ExxonMobil, a well-known oil major, with roots that can be traced back to John D. Rockefeller's Standard Oil. Its operations span every continent except Antarctica. The other is a lesser known company called NextEra, which you may or may not have heard of. They began building a renewable energy business back in the 1990s and have since become the largest producer of wind and solar energy in the US.
Now, out of these two companies, which do you think now has the highest stock market value?
If you went for NextEra, you would be correct. This year, for the first time, NextEra's stock market value exceeded ExxonMobil.1 Yet, this isn't just a story of two companies but symptomatic of a much larger, global trend in which interest in renewable energies has skyrocketed.
In the green bond market alone, there was an estimated $143 billion raised in 2019 for alternative energy investments, up from $30.3 billion in 2015.2 The forces behind the trend are not only fascinating to observe but also have massive long-term implications for all investors.
This time really is different
It all starts with a recognition that if human-driven climate change remains unchecked it poses an existential threat to our way of life. A world ravaged by dying oceans, wildfires, infectious diseases and unbreathable air will have profound consequences for governments, companies and, of course, each and every individual. Even the ones reading this article. Yes you.
A world ravaged by climate change isn't a place anyone would want to retire into or leave for the next generation. We need to change how we produce energy by swapping dirty fossil fuels in favour of clean renewables energies.
The good news is that action is already happening and accelerating fast. Most governments, for instance, accept more aggressive policy action is needed. In fact, the UK in 2019 became the first major economy to pass legislation targeting net-zero carbon emissions by 2050.3 To achieve this ambitious goal, the Committee on Climate Change has stated that energy from low-carbon sources, such as wind and solar power, must quadruple by 2050. This will mean a lot of investment capital being directed into assets that are involved in renewable energy.
This change isn't just limited to the UK. Even China, the world's biggest coal producer, made a pledge this year to achieve net zero carbon emissions by 2060.4 Nor is it just governments. Companies are also changing their business activities to reflect climate change; in no small part due to pressure from their investors such as ourselves. In February, BP, a large emitter of greenhouse gases, pledged to be net carbon-zero company by 2050, which will require it to increase its focus on renewable energy.
And it's not just energy companies that are taking on the challenge. Another example is Microsoft. It has gone one step further by aiming to be carbon negative by 2030, which means having the net effect of removing carbon dioxide from the atmosphere. Microsoft's data centres, which require huge amounts of electricity, are now primarily powered by renewable energy.
Every investor penny counts
Finally, individuals have a big part to play in shaping the future through what they decide to do with their pensions and investments. There are promising signs that an increasing amount of people are taking a more active interest in where their money is being invested. For example, a recent Aviva survey showed 92 per cent of advisers believe environmental, social and governance factors will make up a larger proportion of their business in the next couple of years, primarily due to increased demand from their clients. What we can glean from this is that people care about being good citizens and looking after the environment: increasing our reliance on renewable energy sources is a key part of that.
Renewable energy5 made up almost half of Britain's electricity generation in the first half of the year.6 This is unquestionably positive news, but it still means a large proportion of the remainder (37.4 per cent) is still sourced from fossil fuels that are damaging the planet. Nevertheless, we believe that over the next few years growth in renewable energy, both in the UK and globally, will grow exponentially; indeed, our survival as a species counts on it. This monumental change will be driven by governments, companies and individuals all around the world.
We want to encourage and help our clients be on the right side of this change. We can do this by using our influence as a large asset manager to push companies to align their businesses to a lower carbon world, while also investing into exciting pioneering companies that are providing solutions to our renewable energy needs.
- Gregory Meyer, ‘Clean energy group NextEra surpasses ExxonMobil in market cap', October 2, 2020
- Dorothy Neufeld, ‘New Waves: The ESG Megatrend Meets Green Bonds', Visual Capitalist, August 11, 2020
- ‘CCC welcomes Government re-commitment to onshore wind and solar', Committee on Climate Change, March 3, 2020
- Dennis Normile, ‘Can China, the world's biggest coal consumer, become carbon neutral by 2060?', September 29, 2020
- 'Renewable energy', The Guardian, 2020
- Vanessa Martin and George Creasey, ‘UK electricity generation, trade and consumption, April to June 2020', Department for Business, Energy & Industrial Strategy, September 24, 2020
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