The Sixth Assessment Report on climate change from the Intergovernmental Panel on Climate Change (IPCC), the third part of which was published earlier this month, has not been an easy read. Global CO2 emissions rose by +6% to 36.3bn tons in 2021, more than offsetting the reduction in 2020 due to Covid-19. The sustainable recovery much touted by governments has so far yet to come to fruition.
The development of the Clean Energy sector has historically been significantly impacted by previous energy crises. The war in Ukraine and its major impact on energy markets will be no exception. Sadly, it took a tragedy at our doors for us to come to realize that renewables and energy efficiency are not only about climate change, but also about our independence, freedom, and future prosperity.
As investors and companies exit the Russian market in droves, new criteria, such as the defence of democracy and non-dependence on authoritarian regimes, are giving new lustre to previously banned sectors.
In 2021, the 27 EU member states and the European Parliament agreed to enshrine the goal of carbon neutrality by 2050 in a “climate law”. And this “Green New Deal” is much more than just wishful thinking, as it not only sets ambitious targets but more importantly provides for massive investments, particularly in infrastructure. So to make the most of it, the biggest winners could be direct investments in infrastructure projects.
During the synchronised sell-off in markets in January – mainly due to massive sector rotation in favour of “value stocks” – clean energy sector stocks suffered. And yet, the transition to clean energy keeps accelerating.
Unlike large caps, where it is difficult to add value and where passive strategies can provide an effective response, for small caps, active management offers a real opportunity to outperform the market by a wide margin. Not to mention its clear benefits in terms of responsible investment and shareholder advocacy.
Sustainable investment continues to charge on. Indeed, according to PwC, more than half of all planned ETF launches for 2022 are expected to be ESG tilted, including 80% of those in Europe. Expectations of investors alongside corporations continue to rise, alongside growing concerns about greenwashing.
In a sign of the maturation of the sustainable investment industry greenwashing is moving up the agenda, with recent studies across developed markets highlighting this as a top risk identified by investment professionals for 2022. Yet, even if stricter regulations are now in place in Europe and if new accounting standards are planned, it is essential that the players in the industry discipline themselves to fight against this scourge. The very legitimacy of sustainable investment is at stake.
After a fabulously supportive year in 2020 for Clean Energy, 2021 may be best described as a whip lash. Looking into 2022, there are clearly the usual suspect headwinds. However, we also foresee multiple strong tailwinds from various directions…
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