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CERAWeek: Climate-related investments not a “side project” anymore, investors agree

04 March 2021 Amena Saiyid

With more countries and companies committing to reach net-zero carbon levels, investors say they are no longer viewing clean energy technologies and projects to mitigate climate impacts as a "green finance on the side."

"This is no longer a debate about brown and green. This is a discussion about an entire transition to net zero," Daniel Klier, HSBC global head of sustainable finance, told a CERAWeek by IHS Markit 4 March panel on sustainable finance.

He agreed with IHS Markit Financial Services Vice President Roger Diwan that 2020 marked a definite movement among the finance sector toward climate and sustainability.

Klier said 2020 was the year that investors noticed companies changed their strategies to deal with energy transition, governments started to inject stimulus funds towards clean energy, and more than 70 central banks said they are considering climate impacts as "true risk."

Looking ahead, "We have definitely hit an inflection point here where the curve is exponential from here as we look to decarbonize the system," Jim Barry, chief investment officer of BlackRock Alternatives Investors and Global Head of BlackRock Real Assets, said.

Responding to policy signals

Capital providers are responding to the policy signals they are getting from the regulators, Barry added, but they are also responding to their stakeholders, their pensioners, their policy holders, their alumni, who have been demanding change.

Transitioning of the entire global energy system is a "massive undertaking" that not only will take some time, but also will give rise to opportunities to invest in renewables, energy storage, and all other elements needed to fuel the transition to a low-carbon economy, according to Salim Samaha, a partner with Global Infrastructure Partners, an investment fund dedicated to infrastructure assets. (Samaha also took part in the CERAWeek discussion.)

BlackRock, for instance, would be looking at large-scale opportunities rather than new technologies, which he said may not be suitable for investing, Barry said.BlackRock would be looking at a company as a whole as it transitions and the risk it poses.

Also, he said BlackRock will be looking at how companies are overall able to transition. BlackRock expects to see transition bonds floated.

Samaha for his part pointed to an interest in investing in the development of operating assets, such as the needed buildout of the electric power grid, or through lining up financing or technologies.

When Diwan asked about investment in the transport sector, Samaha said his company has to consider the overall risks posed by a project, say an electric vehicle (EV) charging station that is competing against a home charging portal and an office one.

Barry noted that opportunities abound for investment when EV charging stations are aggregated together. Also brought up during the discussion was the role of carbon-intensive oil and gas companies in the next five years. Samaha said oil and gas companies will definitely see less investment, while Klier said he expects to see transition in this sector, as is already evident from the way Occidental and Total are positioning themselves. Total is calling itself an integrated energy company, while Occidental is now describing itself as a carbon management company.

Posted 04 March 2021 by Amena Saiyid, Senior Climate & Energy Research Analyst, IHS Markit

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