Four opportunity areas, one Supertrend: Climate change
The momentum behind low-carbon and sustainable investing continues to build as governments, businesses and individuals take climate change to heart. Investors can focus in four potential growth areas, each critical to cutting greenhouse gas emissions and meeting the UN Sustainable Development Goals.
Decarbonizing economic activity is essential to reducing the man-made greenhouse gas (GHG) emissions that contribute to global warming and climate change. Forward-thinking companies are turning this challenge into an opportunity, sparking transformation in the sectors and activities most responsible for GHG emissions. Our “Climate change” Supertrend identifies four areas of development that are driving sustainable and low-carbon investing opportunities and contributing to at least eight of the 17 UN Sustainable Development Goals for a better, brighter future.
According to the International Energy Agency (IEA), a growing global population and economic expansion will likely drive up electricity generation demand by approximately 2% per year.1 The push for clean electricity should accelerate as the industry shifts from traditional energy sources to renewables. In less than two decades, solar power and wind power are expected to account for nearly 40% of total electricity production, with projections for solar photovoltaic energy also high.1
But power generation is not the only focus. Ongoing extreme weather events and wildfires have exposed the importance of networks, increasingly complex due to decentralization, increased grid volatility and customer demand. The developing hydrogen production market is also attracting longer-term interest and capital.
Oil and gas transition
Despite the growth of renewables, the world’s reliance on natural gas, coal and oil will not disappear overnight. Under pressure from investors and the public, legacy oil and gas companies are adopting diverse strategies to lower their GHG emissions in a compressed timeframe. Some are investing in renewable energy assets while others have committed to net-zero emissions.
Given the scale of these ambitions, carbon capture, utilization and storage (CCUS) technologies are considered key to the transition of both the industry and fossil fuel-dependent sectors. According to an IEA report, CCUS technologies will keep growing, especially with additional government support. Meanwhile, traditional oil and gas players will face new competitors as the energy sector evolves.2
With approximately one-quarter of global energy-related emissions stemming from road, rail, air and water transport3, these industries are under scrutiny – and driving change. The electric vehicle (EV) boom has arrived, with global EV penetration in annual car sales projected to jump from around 4% in 2020 to 27% in 2030.3 This growth will have an impact on raw material producers for batteries, battery makers and suppliers, as well as on technology companies in the supply chain.
Looking further ahead, the efficiency of hydrogen bodes well for use in public, rail and heavy transport. The fuel cell EV market could also evolve by the end of the decade, thanks to efficiency gains and the expansion of blue and green hydrogen production. China will likely lead in hydrogen fuel cars, bolstered by the government’s net-zero emission strategy.
Sustainable agriculture and food
According to the Intergovernmental Panel on Climate Change, the global food system is responsible for 25-30% of global GHG emissions4, mainly due to land usage and livestock feed. From new agricultural practices to gene-editing technologies, innovation will be crucial to cut both CO2 and more potent methane emissions.
Consumer preferences and greater awareness of the entire food production system can also play a role. As plant-based food alternatives continue to gain ground, there is also more interest in the environmental impact of food waste. The UN Food and Agriculture Organization estimates that one-third of global food ends up as waste – the equivalent of 8% of GHG emissions.5 Solutions from food retailers and waste management firms will be even more important as food demand rises to meet a growing population.
Ones to watch
Firms leading in renewables (wind, solar, water, etc.) and other CO2-free power generation and electricity-storage technology providers.
Oil and gas transition
Energy companies that can square the circle by cutting GHG emissions while maintaining dividend yields. Carbon-capture technology companies and firms involved in blue and green hydrogen capacity enhancements.
Transport companies with a strong commitment to CO2 reduction. Car manufacturers offering solutions to reduce the environmental footprint, such as electric vehicles, sustainable fuels, hydrogen, or other technologies.
Sustainable agriculture and food production
Companies providing technologies to improve sustainable food production (i.e. precision agriculture, vertical farming technology, gene editing, controlled environment-agriculture technology). Low GHG emission meat processors and plant-based food product providers.
1 IEA (2020), World Energy Outlook 2020
2 IEA (2020), Energy Technology Perspectives 2020
3 Last data point: 14/09/2020. Source: Company data, Credit Suisse estimates
4 Poore and Nemecek (2018), Credit Suisse Research
5 “Global Food Losses and Food Waste: Extent, Causes and Prevention,” Rome: UNFAO, 201