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4 investment opportunities for a net-zero future
Douglas Upton
Equity Investment Analyst
Steven Sperry
IS Product Manager
Key takeaways
  • The International Energy Agency estimates that as much as US$4-US$5 trillion of annual investments will be needed to achieve net-zero by 2050.
  • For many of the big emitters the first step will be electrification. However, in some industries this isn’t possible, and they would need to turn to green hydrogen or carbon capture and storage strategies.
  • Switching to renewable energy can be more expensive; however, many governments are committing large sums of money to promote decarbonisation.

The buzz swirling around the electric vehicle (EV) sector has been front and centre for investors looking to profit from the world’s transition to a net-zero carbon economy. Tesla recently skyrocketed to a US$1 trillion market cap, joining an elite club that includes Apple and Amazon. And EV truck maker Rivian completed its blockbuster public stock offering. But electric cars are only part of a much larger story.


The International Energy Agency (IEA) estimates that as much as US$4-US$5 trillion of annual investments will be needed to achieve net zero by 2050. And the ramifications of the energy transition are likely to be felt widely across many industries, ranging from industrial metals to buildings.


Based on our internal research and discussions with corporate and government officials from around the world, our analysts are weighing investment opportunities in many other sectors that may also benefit in a net-zero world. Here are four areas they are watching closely.


 


1. Green hydrogen is an essential element of decarbonisation


For the world to cut emissions in line with the 2015 Paris Agreement, green hydrogen, a low-carbon fuel made by using renewable energy to split water molecules, is likely to be a critical piece of the puzzle.


Massive shift in energy consumption needed for net-zero transition1


For industries like steel and chemicals, which consume fossil fuels but are not able to electrify their manufacturing processes, green hydrogen is likely to be a must. There are also plans to use green hydrogen to power ships and create artificial jet fuel. It may also help mitigate the need to develop huge batteries to store clean energy generated from intermittent sources like wind or solar.


Current economics may not work for using green hydrogen at scale, but that is rapidly changing. On an energy equivalence basis, green hydrogen today can be between 50%-100% more expensive than liquified natural gas. But regulatory mandates in Europe and large government subsidies are creating a demand base. If renewable energy prices keep falling and the prospect for higher carbon prices increases, the opportunity should only be expected to grow.


Hydrogen: a fuel for a green future 2


There are a handful of companies active in green hydrogen right now that should merit a closer look. But investors need to be selective. Given that the production of green hydrogen requires mostly capital costs, and very little operating costs, the potential for early movers to be stranded with high cost, underearning assets could be a material risk.


2. Industrial metals will be needed to unlock potential of clean technology


The growth of EVs is not just an opportunity for automakers. In order to achieve wide electric vehicle adoption, electric grids need to be improved, charging stations need to be built and the sustainability of the supply chain needs to be addressed. Cobalt, lithium and nickel are important for current battery technology, while the veins and arteries of the green economy run on copper. Rare earth elements are also crucial for renewable power technology like wind turbines.


The ever-increasing demand for some of these key materials, as well as the challenges with procuring some of them, could lead to supply shortages or price increases that could stall the energy transition.


 


1. Source: International Energy Agency. A joule is a unit of energy. Figures may not reconcile due to rounding.


2. Source: BP. Chart shows projections for hydrogen usage as a percentage of total final energy consumption for the industrial and transport sectors. Total final energy consumption measures total energy consumed by end users, such as households, industry and agriculture.


 

Risk factors you should consider before investing:
  • This material is not intended to provide investment advice or be considered a personal recommendation.
  • The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
  • Past results are not a guide to future results.
  • If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
  • Depending on the strategy, risks may be associated with investing in fixed income, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.


Douglas Upton is an equity investment analyst at Capital Group. He has 32 years of investment experience and has been with Capital Group for 16 years. He holds both an MBA and a bachelor’s degree in mathematics and physics from the University of Western Australia. Doug is based in London.

Steven Sperry is an investment product manager with 11 years of industry experience. He holds a bachelor's degree in global business: financial management from Arizona State University. He also holds the Chartered Financial Analyst® designation.


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Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.