Global warming thresholds set out in the Paris climate agreement are in danger of being breached before 2027, while Earth’s biodiversity is also deteriorating at an alarming rate.
Technological innovations are key to combating these threats, and present a significant opportunity for investors to meet both investment and climate-focused goals.
Innovation in engineering and digital technology is driving global climate goal progress. Consumer momentum and government policy are also helping to spur this on.
The introduction of the US Inflation Reduction Act (IRA) should spearhead a new wave of growth and innovation, while Europe’s Green Deal Industrial Plan aims to create a more supportive environment for scaling up the EU’s capacity for net zero technologies and products.
This backdrop should drive profits for the companies delivering game-changing tools, creating opportunities for portfolios if investors can closely track key areas of impact.
Low-carbon transport is a key area for investment. Lower usage of combustion engines is vital as passenger cars are the largest contributor to transport sector carbon emissions, at 39 per cent. The IEA expects EVs to account for 60 per cent of total new car sales across China, Europe and the US by 2030, mitigating the need for up to five million barrels of oil each day.
Battery performance is a hurdle. Typically EVs can drive 100 to 300 miles before recharging but specialists including CATL and Samsung SDI are pioneering in this area. Samsung is developing a high-capacity solid state battery that will enable an EV to drive further. It expects to commercialise this breakthrough in the foreseeable future, a potential gamechanger for the industry.
Renewable energy costs are generally becoming cheaper than fossil fuels and the backdrop for clean energy growth – wind, solar and batteries – is very positive. Growth in both technologies will be driven by their compelling economics, including continued improvements in efficiency and technology, and likely ongoing government policy support.
Among leaders in this area is First Solar, the largest utility-scale solar PV manufacturer in the Western Hemisphere, which has developed a technology to increase the energy yield of its solar panels. There are specialists in the residential solar sector such as Enphase, which uses cutting-edge microinverter technology to turn sunlight more efficiently into electricity at the household scale.
Wind and solar are intermittent forms of energy. Battery energy storage systems (BESS) offer a compelling solution, and the companies involved in this technology such as NextEra Energy are scaling up this technology fast.
Agricultural technology – or ‘agritech’ – describes the use of technology across the agriculture sector with the aim of improving crop yields in a climate and biodiversity friendly manner. The technology spans genetics, big data, machine learning and even artificial intelligence (AI). For example, UK animal genetics company Genus breeds pigs and cattle through selective breeding, producing high-quality meat and milk more efficiently and sustainably.
AI has also been identified as a potentially crucial tool for streamlining the identification and processing of recyclable materials with big potential productivity gains that could benefit investors. Norwegian firm Tomra provides advanced collection and sorting systems, and food processing, by employing sensor-based sorting and grading technology which uses deep learning, a subset of AI.
Innovative US industrial company Kadant is pioneering technologies to improve the efficiency of recycling and waste processing. Kadant makes smart recycling equipment, which provides operators with insights into the quality of wastepaper feedstocks as well as the optimal ways to process waste wood products.
There is also exciting progress being made in areas such as sustainable aviation fuel and carbon capture and storage (CSS). Then there is direct air capture technology which extracts CO₂ directly from the atmosphere. Green steel is manufactured by a process which emits less greenhouse gases than conventional steelmaking, often by using green hydrogen instead of fossil fuels.
Ultimately, there will not be a single silver bullet but rather many solutions which take the fight to climate change and biodiversity loss. All efforts create new potential investment opportunities.
