LGIM’s Howie Li outlines the technologies that will offer the greatest growth potential during the climate transition
About $130trn of investment is needed to achieve global net-zero emissions, including $20trn by 2025. This is an essential investment in our future world, but also an investment opportunity in itself.
There are three technology value chains which should in combination facilitate the transition to a decarbonised world and benefit from the waves of investment into climate and environmental solutions.
Clean energy
This market, related to the production of clean energy, spans equipment manufacturers, technology suppliers, and utilities and power producers, each of which will be vital in helping the world address the climate emergency. In our view, the market for clean energy is poised for sustained growth through a virtuous cycle of investment, technological advancement, and increased adoption.
Battery technology
Without better and more extensive battery storage, the potential of clean energy will be limited. Improved energy storage can help overcome the short-term intermittency - due to daylight hours or fluctuating weather - of renewable sources. Battery technology is also integral to the process of replacing internal combustion engine vehicles with electric alternatives.
Hydrogen economy
The combination of clean energy and batteries can, however, only take the world some of the way to net zero. Many areas of the economy - such as heavy-goods vehicles, shipping, and some aspects of heavy industry and home heating - will be hard to decarbonise with just the aforementioned technologies. Hydrogen power and fuel cells are becoming a viable alternative in these spaces.
Together, these three themes can offer portfolios exposure to long-term secular growth markets, diversification potential relative to a market-cap benchmark, and a tangible ESG impact and alignment to the UN's Sustainable Development Goals.
This post is funded by LGIM
