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Could the energy crisis derail our transition to net-zero?

Bastien Dublanc

20 October 2021 Climate ChangeSustainability

If you have been following the news for the past couple of weeks, the term “energy crisis” has been hard to miss. Across the world, shortages in energy sources are wielding havoc. In Europe, natural gas prices are on the rise, oil prices are going up, and China is struggling with dwindling coal reserves. And as the world is pushing towards a transition to low-carbon economies, could this spike in fossil fuel prices challenge the post-COVID 19 green economic recovery? 

What exactly is leading to these high energy prices?

Energy prices have been formed through many past cycles by supply and demand. Over the past few years, we have seen a confluence of factors which enabled the supply of more, and cheaper energy. Strong oil supply growth in the US (8.9% a year between 2009 and 2019, see below) followed by an oil price war between OPEC and Russia that resulted in an oversupplied oil market, and the sharp decline in costs of renewables (at parity with fossil fuels when it relates to power generation) kept overall energy costs low for consumers and businesses. That was before the COVID-19 pandemic.  

Strong oil supply growth and fast-declining renewable costs

Source: EIA, IRENA, Clim8Invest computations; NB: Liquids = Oil + NGLs; CSP = Concentrated Solar Power

In the first half of 2020, COVID-19 first created a demand shock (energy consumption was down 4.5% in 2020), notably for oil (mobility was significantly curtailed in 2020), requiring a coordinated answer from OPEC+ which is still in force, in practice, to adjust supply with demand. To address the economic shock (demand and supply), global central banks injected a lot of liquidity into the financial systems which had two consequences: boosting economic growth in 2021 which lead to higher energy demand, and favouring inflows into commodity markets. The combination of the two are the main drivers behind the recent spike in fossil energy prices. 

Put simply, energy demand is rising (from a depressed base) but oil & gas producers haven’t responded to price signals yet (they are reluctant to boost investment in order to increase supply). In our view this is driven by three main reasons: 

2020 was a record year in terms of installation, resulting in a 10% YoY growth in renewables capacity (wind and solar). Yet, this pace of growth is proving itself as too slow to make our economies less reliant on fossil fuels. And while most of the recent fiscal packages (EU Green Deal, US Infrastructure Bill, China’s 2060 vision) support the introduction of renewable energy, we believe the velocity of money remains too slow to reach net zero by 2050. According to the IEA World Energy Outlook 2021, fiscal measures dedicated to the green recovery amount to $2.7tn, o/w $0.4tn directly dedicated to clean energy. Indeed, in the IEA’s net zero scenario, electricity production from solar and wind should grow at an annual pace of 21% and 17% to 2030, dropping to 11% and 10% between 2030 and 2050. A quick catch up is absolutely necessary to keep us aligned with 1.5°C. 

Despite the competitiveness of renewable energy against fossil fuels, our economies remain heavily reliant on fossil fuels as they still account for 83% of the world’s primary energy consumption (coal included), and 94% of CO2 emissions (coal included) in 2019, a picture that is by and large no longer accepted by our societies.  

The prices of oil and gas have significantly increased over the past twelve months (see charts below), implying that energy bills for households and businesses will start to be noticed over the next few quarters. 

Source: FactSet, Clim8 Invest

Put together, the lack of response by energy producers, the seemingly slow rate of growth in the expansion of renewable capacities and the underinvestment in the broader energy landscape might be leading us into a short term future of more frequent shortages and price volatility.

Energy transition vs. security of supply

As economies grow, so does energy demand (and vice-versa). In practice this means that producing goods and services (economic output), requires energy to fuel production, whether it be manufacturing plants or computers. An increase in output usually means an increase in energy demand. Thus, having access to abundant and cheap energy is in many ways necessary to creating wealth. 

GDP growth vs. primary energy consumption

Source: BP statistical review of the world, IMF, Clim8 Invest. 

Our societies are increasingly keen to see the green transition happen. Equally, facing energy shortages is not acceptable in 2021. Anecdotes of empty gas stations in the UK, or Chinese plants forced to shut down because of very low coal inventories are flourishing and provide evidence that we’re entering an uncertain energy outlook, at least in the short term. This complex equation – short-term security of energy supply vs. long-term decarbonisation – can be solved in multiple ways. As an example, China recently approved the increase in domestic coal production and started to re-import Australian coal (despite a ban) to prevent electricity prices from skyrocketing further. Yet, accelerating the energy transition requires in itself energy.  It is worth mentioning that the IMF slightly reduced its 2021 GDP growth forecast to 5.9% (from 6%), with fuel prices inflation being one of the drivers of this revision. 

Can the energy crisis dent the green transition? 

Over the past decade, economies of scale, better efficiency (i.e. ability to convert sun radiation or wind resource into electricity) and cheaper cost of capital were the main drivers behind bringing the cost of renewables down. However, there was very little inflation associated with it in the past. These days, inflation is front and centre of the economic agenda, with energy possibly the most visible example of inflation impacting our economies. But it’s just not energy. For instance, copper prices have jumped by 82 percent 2 over the past two years, semiconductor shortages are in the news, wage inflation is becoming apparent in selected regions, and polysilicon prices are on the rise (polysilicon is a key component of solar modules). We believe this could create near-term headwinds on the penetration of renewable electricity: 

  • The ability to increase production capacity for wind and solar due to widespread shortages and/or higher costs
  • Economic rationale to switch to renewables, potentially more challenged in the absence of a global CO2 price and/or coercitive mechanisms
  • Increased cautiousness from consumers (households and corporations alike) that may prioritise in the short term other spending categories to navigate this more uncertain environment 

Conversely, there are enough historical references that support the view that high oil & gas prices lead to renewed investments in alternative energy sources (nuclear acceleration in the wake of the 1973-75 oil shock such as in France, hydrogen as we headed into the dotcom bubble of 2000, solar in 2007-08). We believe this time will be no different, especially given the widespread policy and societal support for clean energy with net-zero pledges flourishing

All put together, the sharp decline in renewable costs can be challenged in the near-term by supply chain inflation (energy costs being one of the many factors at play) but there are many reasons to believe that current market forces and the push to decarbonise quickly the energy system will be able to shrug off these headwinds. 

Conclusion

There is little doubt about the direction of travel. More renewables (wind and solar) and alternative fuels (biofuels from waste residues, hydrogen) are required at a massive scale in order to reach the net zero emissions goal by 2050. Renewables can now compete with fossil fuels on price as costs have been sharply decreasing over the past decade. And yet, we might be entering a period of less abundant, more expensive energy prices, still due to our large reliance on fossil fuels. Despite inflation building in supply chains and raw materials, this is an opportunity to accelerate the energy revolution that requires more energy, and a much cleaner energy, to drive sustainable global economic growth. This has a cost: $4Tn of annual investments to 2030 according to the IEA net zero scenario. But the cost of inaction in the long term is, we believe, far greater than that. 

References

1: analysis based on FactSet data for the FactSet industry group World Minerals; net debt to EBITDA at 1.5x as of Q2 2021 vs. 1.2x as of Q4 2019; total debt/total equity at 61.7% vs. 51.1%

2: source FactSet, as of October 19th, 2021. 

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Duncan Grierson, Clim8 CEO: “We must act now”

Duncan Grierson

09 August 2021 Climate ChangeSustainability

On August 9th the IPCC released a landmark study, warning of increasingly extreme heatwaves, droughts and flooding, and a key temperature limit being broken in just over a decade. The report “is a code red for humanity” and a global call to action. 

Here are my 4 takeaways from the report:

  • The new report begins with a definitive statement: “It is unequivocal that human influence has warmed the atmosphere, ocean and land.”
  • The last decade was hotter than any period in 125,000 years.
  • The key aspect of the IPCC report is that the 42-page summary is agreed, line by line, by every government on the planet. 
  • We are running out of time. But if we can cut global emissions in half by 2030 and reach net zero by the middle of this century, we can halt and possibly reverse the rise in temperatures. UN Secretary General António Guterres said: “If we combine forces now, we can avert climate catastrophe. But, as this report makes clear, there is no time for delay and no room for excuses. I count on government leaders and all stakeholders to ensure COP26 is a success.”

We are running out of time”

– Duncan Grierson

Though this report is extensive and has brought together leading climate scientists from across the globe, it doesn’t report on how we can mitigate and adapt to the climate crisis. Later this year, the IPCC proposes to publish a follow-up report to delve into climate adaptation.

It’s clear from the research that we need to act FAST now. There is hope, and where there is hope there are opportunities for us to take action.

One of the ways to take immediate action is through climate impact investing. It’s why we invest 100% into the companies and technologies that are at the forefront of a sustainable future.

Together, we can build a sustainable and financially secure future.

Capital at risk

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Future Outlook for Clean Energy

Clim8 Team

09 July 2021 Climate ChangeSustainability

Guest article from Industry Expert, Michael Wilshire

In the last decade, the clean energy sector has grown at an impressive rate.  Wind and solar accounted for less than 2% of global generation in 2010, growing to over 10% by 2020, with a 56% share projected for 2050 (see Bloomberg New Energy Finance’s latest “ New Energy Outlook”, Economic Transition Scenario). Global investment in renewable energy generation now runs at around $300 billion a year. Installation of domestic heat pumps added another $50 billion of annual investment in 2020.1 Total annual expenditure on electric vehicles and associated charging infrastructure, an industry that barely existed ten years ago, was an additional $140 billion in 2020.


Underlying trends


The keys to this success have been a mix of technology innovation, coupled with policies that stimulated early demand for these developments. As a result, we are now seeing just the first instalments of a radically different and cleaner energy system.  Innovation has been unusually rapid for three reasons

  • Modularity, a shift away from large scale generation and other assets towards new smaller scale units that are being deployed in large volumes – for example solar modules, individual wind turbines, heat pumps, batteries and hydrogen electrolysers. High unit volumes lead to strong learning effects that rapidly drive down costs. In solar, for example, every doubling of installed capacity has led to costs falling by over 28% – a learning rate that is almost unparalleled, other in a few fast-developing sectors such semiconductors, software and genomics. 
  • Decentralisation, where the physical location of assets moves from the centre towards a distributed network of smaller, often interconnected assets, in homes, commercial buildings and local districts.  New types of businesses are emerging that may install, operate, own or aggregate these assets – for example offering managed solar and storage services, EV charging, energy management, microgrids, and demand response services.  In some ways, this catalyst for innovation is similar to the early days of the internet, a highly decentralised technology that liberated the telecommunications industry from closed, proprietary and centrally managed networks.
  • Digitalisation, in particular an abundance of data to and from sensors, controls and other devices (the so-called ‘Internet of Things’), low cost cloud computing, and machine learning.  These technologies allow decentralised assets to be monitored, controlled and optimised in new ways that improve efficiency and resilience.

New challenges

There are however still many challenges and the scale of required investment is huge.  BNEF’s Economic Transition Scenario, which focuses on the direct economics of energy investment and removes longer term policy drivers, forecasts that between now and 2050, a cumulative total of $15.1 trillion will need to be invested in new power capacity, 80% of which is renewables and batteries, plus another $14 trillion in the grid.  Even this is unlikely to be enough. For example, to stay on track for 1.75 degrees warming (as a reminder, the Paris agreement targets to remain below 2 degrees compared with pre-industrial times), we would need to more than double the cumulative amount invested just in power generation and grid storage assets to $35 trillion, even before allowing for additional power capacity needed to produce green hydrogen. Other challenges include:

  • Balancing the grid, as the proportion of intermittent renewable generation increases and as more flexible gas fired generation comes under pressure due to its emissions.  Curtailment, longer term storage, and demand management will all be needed.
  • Managing complexity.  The transition to clean energy also requires a digital transformation of energy networks, so that they can handle fast growth in the number of underlying assets and devices that in turn generate huge volumes of data.  Without new approaches, the complexity of doing this would increase in a non-linear, even exponential manner.  New technologies are needed to meet this challenge, such as more modular software platforms and AI.
  • Ensuring resilience, for example strengthening the grid to help integrate renewables and EVs, with major upgrades in cybersecurity. 
  • Deepening inroads into transport, which generates almost a quarter of total fuel-related emissions.  Consumer-driven EVs are just the beginning and battery powered light commercial vehicles, buses and trucks are also strong candidates for electrification. Cities need to develop integrated approaches to different types of public and private transport. Other forms of transport such as long-distance shipping and long-haul aviation will need alternative low carbon molecules such as biofuels or ammonia, due to their requirements for high energy density and long ranges.
  • Decarbonising buildings, which account for around 10% of global emissions from fuel combustion, over half of which is from space and water heating.  This requires a major shift away from gas and oil to electricity.  Heat pumps that extract and concentrate heat from the outside air or ground and which can almost magically produce up to four times as much heat as their electricity input are very energy efficient, but for mass adoption the capital costs of installed systems need to fall significantly.
  • Cleaning up industrial manufacturing and processes, which represent just over a quarter of emissions from fuel combustion.  Steel, chemicals and cement production are the most emissions and energy intensive sectors, but are often low margin, with long-established and optimised processes, high entry barriers and large amounts of existing capacity – all of which act as disincentives to major change.


Opportunities

Addressing these challenges will lead to a variety of new business and investment opportunities, for example in:

  • Asset investment, to build the energy infrastructure of the future.  Utilities will need to invest heavily in renewable generation, grid infrastructure, grid-scale battery storage, and hydrogen electrolysers. One of the best applications for hydrogen is likely to be for long-term storage of energy to balance the grid in periods of peak demand.  Other players, including oil and gas companies, are already shifting more of their investment towards clean technologies.
  • Deeper decentralisation of electrification.  Continued investment in rooftop solar for commercial and residential premises is one example of decentralisation, but a massive programme of investment is also needed in distributed assets that can take advantage of cheap, clean electricity such as heat pumps for buildings, private and public EV charging networks and local battery storage.  Installation and design services will be needed to support these rollouts.
  • Software platforms, that act as a unified interface with complex energy systems and simplify the challenge of developing applications and systems to run them.  In the US, C3.ai, an enterprise software company, has developed a ‘model-driven architecture’ that acts as a layer of abstraction between different sources of device data, databases, machine learning frameworks, algorithms and applications – with energy as its largest current market. In Europe, software businesses like Greencom Networks, Kiwigrid and others have developed platforms, designed to help utilities control distributed assets such as control solar panels, batteries, electric vehicle chargers and smart home energy loads.  Cybersecurity platforms are also being developed that similarly interface with a myriad of different devices on networks.
  • New service models.  Whilst much of the energy industry has in the past been vertically integrated, we are seeing a distinction between businesses which provide a service and those which own or operate the underlying assets.  For example, Octopus Energy in the UK, launched in 2015, now has 2.2 million domestic customers, 7.5% of the UK retail market. At the core is its ‘Kraken’ software platform, which  supports a wide range of consumer services, including clean electricity retail, EV charging points, battery storage services, and integration with rooftop solar generation. It also licenses Kraken to third parties, with a total of 17 million energy accounts now on the platform.
  • Clean industrial processes. Technologies are being designed to reduce emissions from industrial processes.  Examples include Boston Metal in the US which has developed a molten oxide electrolysis process that eliminates the need for coke in steel production.  In Sweden SSAB (a Swedish steel company), LKAB (Europe’s largest iron ore producer) and Vattenfall (a major European energy company) are working together to decarbonise steel using hydrogen, aiming for commercial scale production within five years.  CarbonCure has developed a process for adding captured CO2 to concrete as it is produced, thereby increasing its strength, embedding the CO2 permanently and reducing the amount of cement needed.
  • Continual technology innovation.  Whilst ‘breakthroughs’ are often hoped for, technology innovation is often a more continuous process of learning in which a series of smaller improvements are made more gradually, but which collectively add up to a remarkable improvement over time.  We are likely to see continued reductions in the costs of solar, wind energy, battery technologies, heat pumps and other areas – due to improvements drawn from engineering, physics, chemistry, materials and computer sciences.  There is little evidence that the learning rates we have seen over the last ten years are slowing, and companies that best understand these trends and exploit them are most likely to prosper over the next decade.

Capital at risk. For illustrative purposes only and does not constitute investment advice.

1 BNEF 2021 Energy Transitions Investment Trends Report

About Michael

Michael is a private investor and advisor, with a particular focus on the impact of emerging technologies.

Michael has significant industry experience having previously worked as Head of Strategy and Research at BNEF, where he built the research teams covering renewables, advanced transportation and digital technologies. He was one of the first investors in the company, prior to its acquisition by Bloomberg in 2010. Michael was formerly a partner at McKinsey, where he advised clients in the energy, technology and telecommunications industries on technology, strategic, operational and marketing matters. Prior to that Michael worked in the UK Department of Energy and was Private Secretary to both the Permanent Secretary and the Minister of State for Energy where he worked on the deregulation of the energy sector, nuclear policy and the privatisation of the electricity industry.

Michael has an MA in Mathematics from Cambridge University and an MBA from the London Business School.

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G7 in Cornwall – white sands, blue ocean, and the green agenda

Clim8 Team

16 June 2021 Climate ChangeSustainable Investing

G7 and green agenda

by Bastien Dublanc, Investment Director @ Clim8 Invest

As I was travelling on the train back to Paris last Sunday, I was torn between my two passions – great tennis (what an epic final at Roland Garros!) and sustainable finance, with expert commentary around the G7 communique dominating my newsfeed. Trying to unpick what really matters in high-level policy papers is not always easy, but it is a crucial part of our role as asset managers. This allows us to validate our assumptions and get a sense of where regulators might shift their attention.  

Green finance

“We emphasise the need to green the global financial system so that financial decisions take climate considerations into account”. (G7)

At the heart of Clim8’s mission is building a truly sustainable investing model. We believe that trillions have to be directed towards green finance to ensure that we comply with the Paris agreement (limiting global warming by 1.5C above pre-industrial levels by 2100). 

The question is: Where do you start? Which solutions are practical enough to turn intentions into actions? And what tools are readily available to investors? 

Today, not much is clear. But a couple of initiatives that were highlighted in the G7’s communique are in my mind helpful in bringing mandatory disclosures to help investors assess companies on their non-financial merits.

Firstly, climate-related disclosure is taking centre stage. Financial and non-financial companies will have to disclose how they are positioned to address climate-related risks (governance oversight, strategy) and the metrics that support a more informed vision about the potential carbon risks. The UK is expected to become the first G7 country to implement mandatory climate-related disclosure.   

Secondly, but with far fewer details fleshed out, we’re pleased to see the G7 group endorsing the taskforce on natural disclosure (TNFD, created in 2020) to notably help investors to assess companies’ impact under the environmental and biodiversity angle. 

Standard and common reporting rules should help investors to better compare companies’ impact on multiple fronts and direct capital towards companies that allocate capital accordingly. But at Clim8, we haven’t waited for these rules to be implemented and we thrive on finding ways to measure companies’ impact, although we acknowledge this is far from a perfect science. 

What about climate? 

“To be credible, ambitions need to be supported by tangible actions in all sectors of our economies and societies. We will lead a technology-driven transition to Net Zero, supported by relevant policies [….] and prioritising the most urgent and polluting sectors and activities” (G7)

Sectors that were highlighted as priorities were energy generation and distribution, transport, heavy industry, homes and buildings, agriculture, forestry and other land use. 

At Clim8, our investment methodology focuses on these sectors, recognising that positive environmental impact comes from decarbonising them at a fast pace, and this should be a collective ambition. 

Highlighted sectors are no different from the International Energy Agency (IEA) net-zero research paper released earlier this year and which contains much more detail about the roadmap to net zero by 2050. Here are some of the key milestones for each of the sectors discussed that provide much greater clarity relative to the G7’s statement: 

  • Power: no new coal plants from 2021, 1GW of wind and solar capacity addition p.a to 2030 with coal phase out in advanced economies aimed at reaching net zero in the power sector by 2035.
  • Transport: 60% of car sales are electric by 2030, ICE ban in 2035, low carbon transportation fuels available for aviation and marine
  • Buildings: all new buildings are net zero carbon ready by 2030
  • Industry: 90% of by 2040, requiring an intense replacement cycle that is low carbon to happen between 2040 and 2050 (hydrogen development is instrumental in supporting this transition along with carbon capture and storage)
  • No new coal mines or oil fields will be developed from now on. 

Shifting to the pledges and numbers, G7 announced:

  • The end of “inefficient” fossil fuel subsidies in G7 countries. In 2015 and 2016, up to $100 billion annually were allocated via tax breaks, public finance and direct spending.    
  • A $100 billion public-private contribution every year up to 2025 to help developing economies to transition towards net zero 
  • A $2.8 billion fund to stop using coal and support transition
  • The launch of the $2 billion Climate Investment Fund that can attract in its first year up to $10 billion of financing
  • A $500 million fund to protect oceans and marine life

To put these numbers into perspective, we need, according to the IEA, $4 trillion of annual investments in clean energy alone to reach net zero. In a nutshell, we’re not there yet. 

Equally, countries might have kept their biggest initiatives for Glasgow (COP26, this November) to announce more granular targets and roadmaps to feel comfortable with the decarbonisation pathways of our economies (We hope…).

Accountability versus inevitable policy response

The leaders committed to the “green revolution” that would limit the rise in global temperatures to 1.5C – so far so good. They also promised to reach net-zero carbon emissions by 2050, halve emissions by 2030, and to conserve or protect at least 30% of land and oceans by 2030.

The most important word here is “promise”, however. There will be undoubtedly new net-zero pledges and targets communicated along COP26. But what if current world leaders and business leaders fail to deliver by 2025? 2030? There will be forceful, abrupt and disorderly measures aimed at rectifying our carbon emissions trajectory. And investors need to be ready for that. A task force backed by the UN – the UN Policy Response Initiative – aims at helping asset managers to anticipate what policies might come into force and how this could impact portfolios. 

At Clim8, we try as much as possible to minimise these risks by following what abrupt measures could come and investing in sectors and industries that are the least likely to be exposed to these abrupt changes. 

With investing, your capital is at risk. For illustrative purposes only and does not constitute investment advice.

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Our view of seven sustainability trends on the rise in 2021

Clim8 Team

08 April 2021 Climate ChangeSustainability

sustainability trends

Sustainability trends suggest a shift towards a more circular system is beginning.

In the last 70 years, mass consumerism and a maturing linear system (make, use, throw away) have changed how we view resources.

The term ‘waste’ can infer little or no worth. All resources, effort, energy and time that goes into making products are dismissed in a single word and often after very short lifespans.

Sustainability trends in waste management

Times are changing. Although landfills and incinerators continue to fill and mindsets still need shifting, rays of hope are on the horizon.

2021 looks to be a year of accelerated change in the waste management world.

Here, in our view, are seven sustainability trends to watch closely over the course of the year.

1. Capturing methane

Landfills emit 15% of the world’s methane emissions, a potent greenhouse gas 28 to 36 times more powerful than CO2 at trapping heat in the atmosphere.

Waste Management, one of the largest waste management companies worldwide, focusses on capturing this methane and using it to run its natural gas-powered fleet of vehicles.

Hopefully this system will also encourage other companies to capitalise on their own methane emissions.

2. Ending the single-use wave

Every additional six-month delay on the ban of single-use plastics results in hundreds of millions more items filling our landfills and oceans. China also recently decided that it would no longer (unsurprisingly) accept non-recyclable waste, heightening the landfill situation further.

Thankfully, we believe legislation is within reach and will force change.

For example, Canada is banning the majority of single-use plastics by the end of this year with Montreal aiming to have a zero waste policy by 2030.

Other countries including France, Taiwan and Kenya are in hot pursuit, many having already banned plastic cups, plates, cutlery and bags.

3. A puzzling affair

The UK has a decentralised waste system with an array of recycling criteria and a confusing labelling system. No wonder 73% of British consumers would welcome greater transparency about their waste.

Combined with a widening variety of plastics and mixed-polymer plastics on the market, sorting waste is, in our view, a complex issue.

Good news though. Advancements in sorting technology continue to make headway in alleviating the pressure for waste-to-product companies such as Renewi.

However the system is still heavily reliant on humans separating out the different plastics at a maximum rate of 30 to 40 recyclables per minute. 2021 will be the year AI becomes prevalent. Increased sorting accuracy and efficiency enables AI-powered machines to sort 160 plastic items per minute.

4. Upping the recycling ante

Increased customer pressure and new legislation are pushing brands to think carefully about their design choices.

Whilst fiscal policy changes (for example a tax on all products that do not hit a 30% recycled-content threshold will be introduced in the UK in 2022) will drive some decision-making, others will be good-will, or value-led (the value of recycled materials especially rare earth could be significant which creates an incentive to recycle), such as the surge in battery technology recycling research by companies like Umicore.

5. Collaboration is king

Waste is, in our view, a systemic issue. Brands trying to solve the situation alone generally stall early on.

We believe worldwide collaborations and partnerships are and will be the answer. Co-founded by Tetrapak, Nestle, Danone and Veolia, 3R Initiative, in our opinion, is a prime example.

A global collaboration, it researches different methodologies to help reduce, recover and recycle the ever-increasing plastic production by companies. Findings are open source so all companies can benefit.

6. Thinking outside the box

Designing out waste completely is the ideal scenario. Unfortunately, society has become less and less circular over the decades. Only 8.6% of waste worldwide is recycled and the figure is getting worse.

Rethinking the way products are designed with end of life in mind will change this. DS Smith, a global packaging solutions company, now trains all of their designers in Circular Design Principles to help them hit their 2023 target of producing 100% recyclable or reusable packaging.

7. Is alternative better?

Sustainable paper-based packaging’s popularity has increased tenfold and Smurfit Kappa is leading the charge.

However, many other brands are turning to plastic alternatives such as plant-derived materials that claim to be biodegradable. Despite sounding green on the tin, in reality they typically only degrade in highly-controlled environments.

Although new varieties of such materials encourage consumers to lower their plastic consumption, they can wreak havoc on a waste management system not capable of processing these materials.

Though it’s not obvious, solutions, partnerships and innovations are being worked on behind the scenes. Working collaboratively is the only way to productively move forwards. Invest your money in companies pioneering the way and accelerate the rate of change.

With investing your capital is at risk. Information is for illustrative purposes only and does not constitute investment advice.

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Overcoming water scarcity: water crisis solutions you should know

Clim8 Team

31 March 2021 Climate ChangeSustainability

Tackling water scarcity

Water scarcity is one of four major challenges preventing 2.1 billion people, almost a third of our global population, from having regular access to clean drinking water.

The other three are pollution, quality and affordability. For this first part in the series, we will be focussing on water scarcity.

Water scarcity? And yet water is everywhere I look

The vast majority – 97% of water on earth is stored in its oceans. A further 2.5% is frozen in polar caps, is locked up in soil or polluted beyond repair. The remaining 0.5% of our global water resources is used by 99% of the Earth’s 1 trillion species, of which humans use a disproportionate amount.

To exacerbate the situation even further, populations are booming, existing infrastructure is poor, farming methods are damaging and climate change is already upon us. Every year, water is becoming scarcer.

Two sides of the water scarcity coin

Water scarcity happens in two ways. Physical water scarcity occurs when water supply does not physically meet demand. This affects 20% of the global population.

Economic water scarcity, however, arises when an adequate water supply cannot be tapped due to insufficient funds; often caused by lack of good governance. Economic water scarcity affects 23% of the global population, predominantly in Africa

A range of innovation and technology businesses look to solve water scarcity via different channels.

Focus on reducing non-revenue water

We lose a third of all drinkable water worldwide. Old infrastructure such as leaky pipes cause inefficiencies, alongside human factors such as meter reading errors, theft and corruption.

‘Non-revenue water’ costs countries millions of pounds and usually passes onto the ratepayer, making affordability an ever-growing concern.

Thankfully, many companies have developed and are implementing solutions, for example:

  • Xylem SmartBallTM is a multi-sensor tool that detects and locates leaks without the need for costly excavation exercises. Africa’s largest water utility company, Rand Water, used this technology to examine 2,200 kilometres of pipelines and locate every single leak down to the closest metre.
  • Utility companies rarely have funds to replace infrastructure. In fact, USA companies need $1 trillion in the next 25 years to replace all existing leaky infrastructure. Aegion Corporation have invented future-thinking technologies that aim to enable effective pipeline rehabilitation rather than replacement.
  • Smart water meter technologies, such as Badger Meters, are being used to replace existing antiquated systems. Smart technology enables companies to check water usage, identify water leakages and detect tampering in real time.

Moving to access the 97%

Rapid adoption of desalination technologies in arid regions such as the Middle East, has helped countries deal with physical water scarcity. In Saudi Arabia, desalination now accounts for nearly 70% of their drinking water. 
However, desalination plants are power-hungry using 4 kilowatt hours of energy for every cubic metre of water produced. This costs customers as much as $5 per 1000 gallons versus $1.50 per 1000 gallons from a typical municipal water supplier even if the costs have fallen significantly over the last 2 decades.

Increasing solar power generation will bring this cost down, though some experts believe that desalination must be coupled with other solutions to reduce costs substantially.

water scarcity
Source: Mission 2017

To make desalination truly affordable, Energy Recovery, an innovative desalination company, produces highly efficient and scalable solutions that minimise existing plants’ energy usage and carbon emissions. To date, $2 billion in energy expenses have been saved and 11.5 million metric tons of carbon dioxide emissions have been eliminated.

A team in Singapore are also exploring biomimicry techniques to see how mangrove plants are able to extract fresh water from the sea with minimal energy.

Slowly changing perceptions

Reusing and recycling water should alleviate municipality and industry-wide water scarcity. Depending on whether it is drinkable, water can irrigate orchards, recharge groundwater or wash vehicles. Wastewater treatment technology has improved exponentially in the last decade. Kurita Water is a prime example that has created Zero-Liquid Discharge (ZLD) systems, a closed-loop process which treats and reuses water without any discharge. 

The public appears to remain sceptical as to whether recycled, treated wastewater is drinkable. Highly visible champions such as Bill Gates are vouching for its safety, which should help grow the practice. Australia turning to greywater would save 1 trillion litres of water.

Intelligent irrigation

The global agricultural industry uses 70% of our freshwater supply. Inefficient watering methods loses much of it to field run-off. 

In developing countries, the Food and Agricultural Organisation of the United Nations (FAO) launched an initiative, Global Framework for Action on Water Scarcity in Agriculture helping farmers adapt to climate change impacts and water scarcity. In the meantime,  precision irrigation systems and computer algorithms are becoming commonplace in developed countries, reducing water usage ten-fold and preventing run-off. 

For many of us living in rain-abundant countries, it can be hard to envisage water scarcity. With increasing global temperatures though, it may become more frequent. 

In order to resolve this worsening situation, investment into innovative companies applying solutions to water scarcity is essential.

With investing your capital is at risk. Information is for illustrative purposes only and does not constitute investment advice.

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Clean Energy Superpower: The Energy Storage Solution

Clim8 Team

13 April 2021 Climate ChangeSustainability

Wind farms and solar panels are a common sight these days. Originally criticised for blemishing unspoilt landscapes, they are now welcomed as signs of greener times.

And as fossil-fuel energy gradually gives way to clean energy, wind and solar will likely take over as the dominant energy source. Especially in the UK and other less mountainous countries that do not benefit from an abundance of hydropower, currently the world’s most utilised renewable energy source.

Actually, over the course of the last two years, the UK managed several months without coal-based power generation at all.

The clean energy conundrum

Water might always flow, but what happens when the sun does not shine and the wind does not blow? How do you maintain a consistently sufficient supply of power when the weather isn’t playing ball?

 Adding to the challenge, electricity consumption patterns are changing. Transport systems are gradually electrifying and our dependence on numerous electronic devices increases.

Clean energy: the missing solution

The answer, we believe, is energy storage. Combining solar, wind and battery storage technology (known as SWB) cannot only, in our view, help bring the cost of green energy contracts down but also balance intermittent energy supply for grid operators.

Think tank, RethinkX, believes that when SWB technology is finally fully integrated in power systems and running at optimal conditions, it will generate 3x-5x as much energy as today’s grid whilst energy can be stored on the less windy days.

If anything, clean energy sources are capable of excessive amounts of surplus electricity generation, produced at near-zero marginal cost, coined ‘Clean Energy Superpower’.

An idyllic thought but a few hoops we feel need to be jumped-through first.

Automotive industry – a source of inspiration

Battery storage size (the number of kWh that a battery can hold as opposed to the physical size) and output remains a challenge for the adoption of electric vehicles.

Thankfully the race to find solutions to these challenges is drawing closer; the magic figure of $100/kWh is widely seen as the threshold beyond which batteries will become mainstream. This is mostly driven by the Electric Vehicle (EV) industry’s need for batteries that last longer, hold more energy, and weigh less.

As of this month StoreDot, a startup battery manufacturer working in the automotive marketplace, released a battery that it says can fully charge in just five minutes; a notable step change brought about by highly-targeted industrial innovation.

We all want an electric car but where can we get power when we want it? The concept of ‘range anxiety’ is key; when people  try to keep their battery charged 100pc even when they do not need it.

Some clean energy companies such as Vestas, a wind turbine manufacturer, are latching onto the innovative sprint and deep pockets of the automotive industries and forming partnerships with leading EV companies like Tesla to help accelerate the process further.

Capturing the clean energy superpower

Many energy suppliers are taking storage issues into their own hands.

Ørsted, originally a Scandinavian oil and gas company and now the world’s largest offshore wind power developer, has recently installed one of the first stand-alone, large-scale battery energy storage units near their wind turbine site off Liverpool, UK.

Ørsted can now, we understand, capture 90MW of energy directly from their turbines, helping existing local grid services to meet peak demands when required.

Flattening out peak demand

Factories have, in our opinion, had this nailed for decades; running their machinery overnight when energy is abundant and prices are low.

However, despite the availability of smart home technology on the market, adoption levels are still low; the cost savings are often not understood, or not enough to outweigh the timing convenience on a per-household basis.

Studies also reveal that perceived usefulness, ease of use, trust and compatibility are inherently affecting uptake levels. More research needs to be done, in our opinion, to enable companies to break down entry level barriers.

Elephant in the room or The inconvenient truth

Transitioning to a green economy, we believe, is going to need substantial resources; starting with all the raw materials needed to meet the growing battery and wind turbine demands. Wind turbines alone need 5.5Mt of copper to meet 2028 targets, regardless of all other metals required in their construction.

Sadly, the long-term ill-effects of most current mining operations are considerable. Mining these materials also has a detrimental effect on the environment. Most notably from air and water pollution, to land damage and loss of biodiversity.

Climate change deniers, in our experience, repeatedly raise this as part of their argument against the green transition. We must carefully explore this point while we look for alternative solutions.

Mark Carney, ex- Governor of the Bank of Canada and Bank of England, as well as Financial Advisor to Boris Johnson for COP26, has stated that the net-zero transition is the ‘greatest commercial opportunity of our time’. Many companies worldwide also share this opinion and are jumping on board to find solutions. The race is on to turn abundant amounts of clean energy into an abundance of money.

Companies are already jumping on the bandwagon. They are focusing on technologies that aim to minimise mining for virgin materials. Amazon’s Climate Pledge Fund recently put a sizable portion of its $2 billion pot into Redwood Materials, a company founded by Tesla’s former Chief Technology Officer. It focuses on solving the battery recycling challenge.

Whilst Vestas has teamed up with Aarhus University and the Danish Technology Institute to build a circular economic model. This retains and reuses everything, including the wind turbine blades, which to this day has been a sore sticking point for the industry.

Final word

The topic is hugely complex but in our view, if solved, comes with an equally huge reward. And we may not have solved the challenge yet.

But with so many countries and companies worldwide striving for a solution, one can’t help but feel optimistic that positive change is on the horizon.

The big question is – will it be too late? We think not, but it will require huge investment in the right companies to find answers fast.

With investing your capital is at risk. This information is for illustrative purposes only and does not constitute investment advice.

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What is upcycling and how can it stop food waste?

Clim8 Team

19 March 2021 Climate ChangeSustainability

From fashion to food, upcycling is in Vogue this year. No pun intended, here is the article. Everyone wants a slice of the cake. A welcome trend that is helping tackle our inherent waste problem. 

Simply put, upcycling takes what would traditionally be seen as waste and turns it into new products of similar or higher quality. Making better use of the energy expended in sourcing, transporting and processing material, it prevents valuable resources going to landfill.

A term originally coined by Michael Braungart and William McDonough, upcycling also plays a major role in the circular economy transition.

Food waste: today’s problem

Waste is a recent phenomenon. Until the 19th century, people made all they needed at home, squeezing out every last drop of value from each item. Broken ceramics, shells and animal bones were all discarded. 

During Queen Victoria’s reign (1837 – 1901), an enormous societal shift took place. Incomes were on the rise and people subsequently started buying what they previously made at home from stores. Packaged goods became the norm average household waste skyrocketed and the perceived value of each item was lost. 

Only when waste started visibly piling up were people forced to start finding solutions to fix this new systemic issue. Upcycling was born. 

Changing perceptions about food waste

The term ‘waste’ can imply something of little value. Although upcycling in other industries is becoming ‘trendy’, people still perceive food waste as ‘rotten’, ‘useless’ or even ‘inedible’.

Today’s biggest challenge is not figuring out how to upcycle food waste but convincing people that food waste is in fact perfectly fine to consume. Marketing has a major role to play if upcycled goods are to become mainstream. And not just for eco conscious customers.

Messaging, in our view, needs to steer away from waste’s negative connotations. Companies that have latched onto this have changed the narrative, successfully luring customers in with terms such as ‘by-product’ or ‘derivative’.

Killing two birds with one stone

Despite the marketing conundrum, upcycling food waste brings substantial economic benefits. Companies have discovered a win-win opportunity; an additional revenue stream and a means of saving money on waste disposal.

Their creativity, in our view, is inspiring. Here are some imaginative examples:

  • Sensient Technologies use leftover grape skins from the wine industry to make a hotly sought-after purple extract for dyeing.
  • International Flavors & Fragrances (IFF) recently safeguarded 400 metric tonnes of surplus spinach from farmers’ bins after their production levels exceeded supermarket demand. IFF subsequently turned the leaves into nutrient-rich powders, adding them to health products such as nutritional beverage powders or snack bars. Originally a pilot program, it generated an additional USD $1.3 million leading to discussions on how the initiative could be permanently rolled out.
  • Symrise uses discarded cranberry by-products that do not meet current food standards in cosmetics.
  • Givaudan converts spent coffee grounds into premium ‘coffee oil’ adding it to premium skincare products.
  • Rubies in the Rubble rescues leftover wonky and slightly bruised fruit and vegetables from local markets and transforms them into condiments. 

We still throw a third of all food produced worldwide every year. We have a long way to go to tackle  this but upcycling is definitely one lever we can and should be pulling to ease the load.

With investing your capital is at risk. This information is for illustration purposes only and does not constitute investment advice.

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