Focus on Outcomes

David Byrns, Portfolio Manager at American Century, explains why transition investing is fundamental to achieving net zero.

While global sustainable investments reached US$30.3 trillion in 2022, at the same time greenhouse gas (GHG) emissions have hit an all-time high. According to the World Meteorological Organization, global averaged concentrations of carbon dioxide, the “most important GHG”, were a full 50% above the pre-industrial era for the first time…

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Nature Loss Risk Ramps up

Recovery blueprint highlights opportunity to capitalise on renewable assets to bolster agriculture and food demand. Nature restoration is essential to addressing biodiversity and climate-related risks to finance, ecosystems and human health, research by investment manager Foresight has highlighted. Released last week, the Nature Recovery Blueprint offers practical guidance to land…

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Renewable and Responsible

Nicole Yeomans, Offshore Industrials Lead and Marine Ecology Expert at NatureMetrics, says technology can future-proof floating offshore wind investments against nature risks.

In 1991, ten years after the construction of the first wind turbine, the world’s first offshore wind farm was built in Denmark. Since then, much research has been conducted to better utilise the ocean’s wind power, making offshore wind not only a viable form of sustainable energy, but a strong investment opportunity. Large capital investments into engineering technologies have driven a price reduction of this renewable energy which became price-competitive in Europe with conventional power sources in 2017.

Until recently, offshore wind turbines were placed on fixed structures and could not be installed in very deep or complex seabed locations, which limited the number of sites where these turbines could be utilised. However, the development of floating offshore wind platforms in recent years has opened the door to more offshore sites where the higher wind potential is being utilised in larger and deeper areas.

These large platforms can take different shapes to provide the turbines with buoyancy and stability. They are connected with cables to heavy weights on the seafloor, allowing platforms to float and move with tides and waves but preventing them from drifting. In 2022, 7.1% of global wind power installation came from offshore wind contributing 64.3GW across 19 countries and three continents. By 2050, floating offshore wind will represent 6% of all offshore wind share and a total projected capacity of 300GW.

Exponential growth

With the race to net zero on – and looming renewable energy targets to meet for many countries by 2030 – the interest in the floating offshore sector has grown exponentially. In March 2023, the US administration set a goal to generate 30GW of floating offshore wind energy by 2030, which would power over 10 million homes. Meanwhile in the UK, Labour leader Keir Starmer recently announced an increased investment into floating offshore wind technologies as part of a £8.3 billion budget should the party win the upcoming election. This investment aims to further the UK’s net zero target of obtaining 50GW of energy from offshore wind by 2030. In December 2023, The European Investment Bank also announced a €5 billion commitment to support wind manufacturers and over €20 billion in financing for new projects, such as large-scale offshore wind in the North Sea, small-scale renewable energy projects in Spain, and supply

Visualizing the Copper Investment Opportunity in One Chart

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May 8, 2024 Graphics & Design Visualizing the Copper Investment Opportunity in One Chart

Copper is essential for clean energy applications such as solar panels, wind turbines, and electric vehicles (EVs), as well as for expanding electrical grids.

The surge in demand for the metal, driven by the growing adoption of these technologies, presents a unique investment opportunity for early investors in copper mining companies.

This chart by Sprott explores the growing gap between copper supply and demand until 2050, based on projections from BloombergNEF’s Transition Metals Outlook 2023.

Projected Copper Supply vs. Demand

Copper is naturally abundant on Earth, but extracting the metal at the pace necessary for an electrified economy could be a challenge. The timeline for bringing a copper mine from discovery to production is lengthy, averaging over 16 years.

Top producers like Chile and Peru are facing strikes and protests, along with declining ore grades. Russia, ranked seventh in copper production, faces an expected decline in production due to the ongoing war in Ukraine.

Meanwhile, the increasing adoption of carbon-free technology only highlights copper’s significance. 

High Demand for Transport and Electricity Grid

The demand for copper in the transport sector is projected to increase by 11.1 times by 2050, from 2022. EVs, for example, can contain more than a mile of copper wiring.

Additionally, the demand for copper needed to expand the global electricity grid is projected to increase by 4.8 times by 2050, from 2022.

By 2030, the copper supply gap is projected to approach 10 million metric tons, with both copper prices and copper mining stocks potentially set to benefit.

As the world embraces clean technologies, the search for and expansion of copper mines will be essential. Early investors who gain exposure to copper miners may benefit from the rapidly increasing demand.

Sprott offers convenient exchange-traded alternatives for investors seeking exposure to copper miners. 

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Who’s Building the Most Solar Energy?

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May 5, 2024

See this visualization first on the Voronoi app.

Who’s Building the Most Solar Energy?

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

In 2023, solar energy accounted for three-quarters of renewable capacity additions worldwide. Most of this growth occurred in Asia, the EU, and the U.S., continuing a trend observed over the past decade.

In this graphic, we illustrate the rise in installed solar photovoltaic (PV) capacity in China, the EU, and the U.S. between 2010 and 2022, measured in gigawatts (GW). Bruegel compiled the data..

Chinese Dominance

As of 2022, China’s total installed capacity stands at 393 GW, nearly double that of the EU’s 205 GW and surpassing the USA’s total of 113 GW by more than threefold in absolute terms.

Installed solar
capacity (GW)ChinaEU27U.S. 2022393.0205.5113.0 2021307.0162.795.4 2020254.0136.976.4 2019205.0120.161.6 2018175.3104.052.0 2017130.896.243.8 201677.891.535.4 201543.687.724.2 201428.483.618.1 201317.879.713.3 20126.771.18.6 20113.153.35.6 20101.030.63.4

Since 2017, China has shown a compound annual growth rate (CAGR) of approximately 25% in installed PV capacity, while the USA has seen a CAGR of 21%, and the EU of 16%.

Additionally, China dominates the production of solar power components, currently controlling around 80% of the world’s solar panel supply chain.

In 2022, China’s solar industry employed 2.76 million individuals, with manufacturing roles representing approximately 1.8 million and the remaining 918,000 jobs in construction, installation, and operations and maintenance.

The EU industry employed 648,000 individuals, while the U.S. reached 264,000 jobs.

According to the IEA, China accounts for almost 60% of new renewable capacity expected to become operational globally by 2028.

Despite the phasing out of national subsidies in 2020 and 2021, deployment of solar PV in China is accelerating. The country is expected to reach its national 2030 target for wind and solar PV installations in 2024, six years ahead of schedule.

Take Five: Coal in the Whole

A selection of the major stories impacting ESG investors, in five easy pieces. 

This week’s G7 commitment on coal will have insufficient impact without a global response.

Coal in the whole – The Group of Seven committed to phasing out unabated coal by 2035, but was criticised for allowing continued use of the fuel in power plants that deploy carbon capture technology, as well as for the flexible deadlines it gave to Japan and Germany. The announcement came in response to the COP28 pledge for all parties to transition away from fossil fuel usage. G7 countries said they would submit nationally determined contributions (NDCs) that “demonstrate progression and the highest possible ambition”, including 2030 targets and demonstrating alignment with net zero by 2050 goals. But the Turin communiqué offered precious little detail on the elimination of oil and gas from the energy systems of G7 countries. There has been some action at the individual country level, admittedly, with the US Environmental Protection Agency last week outlining requirements for coal and gas-fuelled plants to capture 90% of emissions, among other measures. While the G7 stressed its adherence to the International Energy Agency’s Net Zero by 2050 scenario, members are not fully aligned with its ban on new oil and gas exploration or development. G7 environment ministers also encouraged other countries to follow their lead on NDCs, and stressed their continued support for Just Energy Transition Partnerships. Given the latter are focused on effecting the clean energy transition of intensive coal users such as South Africa and Indonesia, it is likely that getting these stalled decommissioning initiatives back on track will have more impact on the decarbonisation trajectory than the domestic actions of leading economies. China, it should be noted, added the most coal capacity last year, followed by Indonesia and India.

Plastic progress? – The fourth round of UN-sponsored negotiations on the Global Plastics Treaty were hampered by an inability to agree on all-important production cuts. As a result, “intersessional work” will be needed if a final draft text is to be ready ahead of the last planned round of discussions in Busan in November. Most progress was made on developing a global approach to extended producer responsibility, but reports suggested developed countries fought shy of committing to binding targets for lower production levels. Prior to the talks, 160 financial institutions called for binding rules and obligations to address plastics’

Taxonomies are not Instruments of Industrial Policy

Christina Ng, Managing Director of the Energy Shift Institute says Asia’s transition finance complications could harm its climate goals.

Is transition finance an attempt to extend the spectrum of green finance? Or is it a covert means of financing non-green activities, which have had limited opportunity in gaining access to sustainability-conscious investors?

This phenomenon appears to be occurring in Asian markets.

And nowhere is this more apparent than in the realm of national financing frameworks, where the drive to foster economic growth is so strong that it can be pursued at the expense of transitioning to a genuinely green and sustainable energy future.

Recent developments underscore this troubling trend.

For example, Indonesia’s revamped Sustainable Finance Taxonomy incorporates certain new and existing coal-fired power plants as transition activities and therefore qualifies them for transition finance. The Indonesian government justifies this classification due to the role of coal power generation in processing critical minerals for electric vehicles and clean energy technologies – which aim to contribute to economic growth.

Flawed reasoning

This flawed reasoning not only perpetuates the reliance on fossil fuels but also risks alienating climate-minded foreign investors. Indonesia’s logic, if applied universally, would imply that any power plant, including fossil-fired ones, could be labelled transitional, simply because it powers the manufacturing of clean energy technologies.

Up in the northeast of the region, the government of Japan launched a Green Transformation (GX) policy. It aims to switch Japan’s fossil fuel-oriented industries to clean energy focused ones and issue sovereign transition bonds, among other instruments, to finance the GX plan. But a deeper dive reveals that the centrepiece of the government’s GX strategy is about ensuring economic growth.

This observation is also shared in a Sustainable Fitch note which found an emphasis on the term ‘competitiveness’. Specifically, the term was mentioned 15 times in the GX framework as compared to just once in Singapore’s green financing plan and not at all in India’s framework. The note goes on to say “this may explain why some of the eligible transition activities under Japan’s strategy are supportive of industry, but do not meet international green standards”. The questionable activities referred in Japan’s strategy include hydrogen, gas infrastructure, and ammonia co-firing in coal and gas power plants.

The approaches in Indonesia and Japan overlook the fundamental goal of sustainable finance – chiefly, to channel capital to activities that mitigate greenhouse gas emissions that would, in

Diversify for a Just Transition

Anita Dorett, Director of the Investor Alliance for Human Rights, warns of the pitfalls of relying on social audits to address state-sponsored forced labour risks.

Given multinationals’ complex global supply chains and trading relationships, the vast majority of today’s goods are sourced and produced far from where they are sold and consumed. For this reason, to meet their responsibilities under the UN Guiding Principles on Business and Human Rights (UNGPs), companies must ‘know and show’ where human rights risks may be present at every link in their global supply chains.

To address supply chain risks, companies are expected to disclose all their suppliers and business relationships throughout the entire supply chain, develop stringent supplier codes of conduct, and implement robust monitoring systems to ensure their codes are being enforced on the ground. Third-party social and labour audits and related supplier certifications have long been the go-to method for supply chain monitoring, noting that there are significant shortcomings with these programmes. Where these programmes fail, however, is in geographies where state-imposed forced labour is prevalent. In these cases, even the best-intentioned of such risk-assessment schemes are rendered wholly unverifiable and, therefore, meaningless.

Prohibited practices

Distinct from forced labour imposed by private actors like companies or individuals, state-imposed forced labour is compulsory labour enforced by state or governmental authorities. According to Walk Free’s Global Slavery Index, in 2021, 3.9 million people were forced to work by state authorities.

The International Labour Organization’s (ILO) convention No 105 expressly prohibits state-imposed forced labour. State-imposed forced labour is often implemented as a means of political coercion or ‘re-education’ or as a punishment for expressing dissenting political views; as a method of mobilising labor for economic development; as a means of labour discipline; or as a means of racial, social, ethnic, or religious discrimination. State-imposed forced labour can be found in 17 countries including Uzbekistan, Turkmenistan, Eritrea, North Korea, and China.

Nowhere is this pernicious form of human rights abuse better illustrated than the Chinese government’s long-term repression and enslavement of people in the Xinjiang Province (Uyghur region). The pervasive use of state-imposed forced labour programmes, enforced through an extensive surveillance system in the Uyghur region, vividly illustrates the impossibility of conducting credible supply chain human rights due diligence where the state controls the outcome.

According to auditors, they are only given limited access to worksites, can only inspect a curated ‘snapshot’ of factory conditions,

Global Blended Finance Hits US$15 Billion

Climate-focused transactions are also on the rise, but private investors’ efforts have been limited by data availability. 

Catalytic capital flows to de-risk projects centred around sustainable agriculture, renewable energy, and health and education projects across emerging markets (EMs) have increased in 2023 after a ten-year lull. 

According to blended finance network Convergence’s latest State of Blended Finance report, the market rebounded to a five-year high of US$15 billion in 2023 after ten years of consistently low volumes, with multilateral development banks (MDBs) and development finance institutions (DFIs) investing greater sums. 

Convergence recorded 1,123 blended finance transactions totalling US$213 billion, outstripping the yearly 85 deals average of the past decade. Around 40% of these deals were valued at over US$100 billion in 2023, compared to 17% in 2022 and 28% in 2021. 

“Climate has become an even stronger focus [within blended finance], with financing flows increasing by over 100% in the last year and around half of these climate-focused deals worth US$100 million or more,” confirmed Convergence Manager Nick Zelenczuk during a webinar that launched the report. 

Within that, the energy sector was the most active segment, accounting for nearly a third of total deal activity and US$101 billion of capital flows. 

“Much of this investment targets renewable energy development,” the report mentioned. “Over the last year, 91% of blended transactions in the sector channelled financing to renewable energy, with nearly US$10 billion going towards solar projects.” 

In 2022, Convergence had warned that climate-oriented blended finance transactions were on the decline, having dipped 60% from US$36.5 billion in 2016-18 to US$14 billion in 2019-21. 

In its 2023 climate-focused blended finance report, the network highlighted an uptick in climate-focused blended finance, with large transactions such as the US$1.11 billion SDG Loan Fund devised by Allianz Global Investors and the Dutch Entrepreneurial Development Bank. 

Developing countries currently face an estimated US$4 trillion annual investment gap to meet the UN Sustainable Development Goals (SDGs). Blended finance is seen as a vital tool to contribute the capital flows needed to fulfil both these and the Paris Agreement goals. 

Cards on the table 

Despite the significant