Investment in solar will surpass fossil fuels this year

In ESG Clarity Intelligence‘s September e-zine: ESG evolution explained: Unpacking the biggest developments in ESG and sustainable investing, Deirdre Cooper, Ninety One’s head of sustainable equity, talks about decarbonisation and the investment industry.

Watch the full video interview above and read the transcript below.

So as the world transitions to net zero, that involves an enormous amount of change and, of course, an enormous amount of investment.

Transitioning to net zero will mean that we have to, first of all, change the way we generate electricity. We have to move from using fossil fuels, mostly gas and coal, in terms of electricity generation, to moving to using renewable energy.

So that’s solar and wind predominantly. It will require a lot of battery storage because those solar and wind resources are intermittent, the sun doesn’t shine and the wind doesn’t blow all the time. And it’ll involve a lot of investment in electricity networks to properly integrate those intermittent renewables.

And, for the last bit, you probably need a little bit of hydrogen. And then you have to look at other energy sources. So where is gas used and oil in the industrial processes? Hydrogen will have a big role in decarbonising that.

And then, of course, we’ve got to think about transport. And what’s happening in transport really is a huge move away from petrol cars, combustion engines, towards electric cars using that renewable energy we’ve already generated in our first set of investments. And then, more broadly of course, you have to electrify. It isn’t just cars, it’s heating that will be electrified, it’s industrial processes.

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So it’s big parts of the economy that currently are using oil or gas are going to move towards using electricity. And then, finally, you’ve got a big piece that comes from efficiency. So that means that our factories, our homes and buildings, we just have to use less energy content per unit output. So all of those processes have to get more efficient and we need to invest to do that.

I haven’t talked about land use, which is about 20% of emissions. So that’s methane from cows. It’s also deforestation. So every time we cut down trees those trees were a carbon sink. So, broadly speaking, those are the activities that need to happen.

And, in order for that to happen, the world needs to invest somewhere between $6 and $10trn every year.

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Where we are now? According to the IEA, in 2023, the International Energy Agency expects to see about $1.7trn of investment in climate. And that’s all of those activities I talked about earlier, except for agriculture. The International Energy Agency doesn’t really look at emissions from land use, and we’re very early in addressing that. So it’s not going to change that investment amount dramatically.

To put that in context, the IEA also expects in 2023 about $1.1trn or so will be invested in fossil fuel ecosystems. Now, that’s a huge change that four or five years ago those numbers were switched. We were investing way more in fossil fuels than we were in climate finance. In fact, this year will be the first year that the investment in solar alone will be bigger than a trillion, and it’s bigger than the investment in oil and gas.