Investment experts from abrdn joined industry leaders at a global summit in partnership with the United Nations to discuss technologies that will enable the transition to a net-zero energy economy.

The Global ESG Summit, hosted by ESG Clarity in partnership with the UN Capital Development Fund (UNCDF), comprised three programmes streamed live for audiences in Asia, the UK/Europe and the US. The event brought together ESG experts, fund managers, asset owners and data specialists.

Xavier Michon, Deputy Executive Secretary of the UNCDF, delivered keynote speeches to launch proceedings in each region.

The EMEA event featured an in-depth discussion on innovative industries and green technologies that will enable the world to meet net-zero targets. Participating in the panel discussion was Craig Mackenzie, abrdn’s Head of Strategic Asset Allocation.

In the panel (excepts below), he reveals new technologies he’s optimistic about, examines valuations in nascent industries engaged in carbon capture and hydrogen, discusses voluntary carbon credits and names the country and company that he views as most investible from a net-zero perspective.

Which technology gives you most cause for optimism in achieving the global target of net zero?

There isn’t one silver bullet, we need a constellation of technologies. But decarbonising the power sector can get us a long way to where we need to be. We have the technologies in wind, solar and battery storage to provide cost-competitive decarbonisation solutions. The costs of wind and solar have fallen about 85% in the past 10 years. That’s partly why India, for example, has become more ambitious on climate change. Most of the new power generation it has built in the last three years has been solar, which didn’t figure five years ago. So we have technologies to take us a long way. The challenge will be where we get baseload power from, whether it’s nuclear fission – perhaps using smaller reactors – or whether we can make nuclear fusion work, which doesn’t have the problem of nuclear waste but has always been the technology that’s 20 years away. With direct-current high-capacity grids across large regions such as Europe, coupled with battery storage at scale and pump-hydro storage, we might be able to do without nuclear. But I’m doubtful. First, we need to decarbonise the power sector, and we have solutions for that already. We need to look at every sector of the economy where carbon is being emitted – including transport, steel and aviation – and work out what technological solutions there are.

Have industries using carbon capture or hydrogen reached investible levels for a retail audience?

In some cases they’re more than a decade away from commercialisation, while valuations for some pure-play hydrogen names for example are well north of what we would consider reasonable. Our focus is on more established technologies. The majority of the capital that needs to be deployed to transition to net zero is in assets such as operational wind farms or Gigafactories for batteries. Our core approach is about deploying capital to invest in companies such as Orsted – the world’s biggest offshore wind operator. We also invest in renewable energy infrastructure, where we own wind farms or solar parks. If you look at the total percentage of capital being allocated, that is where most of the money needs to be deployed. That said, we do need some high-risk, high-return venture capitalists to finance the fusion technologies on the off-chance they work.

Company/companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.

What happens if too much global net-zero capital starts chasing too few tech opportunities?

Ultimately the price goes up and expected return goes down. That’s not necessarily a bad thing for the world in the sense that high prices for equity mean low cost of capital, enabling people who can deploy capital to build Gigafactories more cheaply. Tesla has raised about $10 billion of cheap capital over the past few years which it is using to build Gigafactories in different parts of the world. But whether Tesla’s share price is a bubble is an open question. It falls on us as portfolio managers to make assessments of that. We have developed climate scenario tools with a company called Planetrics that allow us to do fair-value assessments of companies based on projections of the climate transition trajectory we think we’re on. You need a view on how fast these technologies are going to be picked up and implemented. That’s what the climate-scenario tools allow us to do.

Do you have a view on voluntary carbon credits and how companies can use them?

Voluntary carbon markets are still a bit wild-westy. There are different standards and some are weaker than others. So there remain significant credibility issues. If we can come up with robust standards that we can all get behind, then absolutely they have a place. There could be significant capital flows since there are hundreds of companies worldwide with net-zero targets. They’re going to find out soon that they can only get the last bit of carbon reduction by netting it out against offsets. So there’s a huge need for high-quality offsets that transform the carbon profile of the economy. But as investors we’re some way away from being able to trust in the voluntary market.

Which country and company do you see as highly investible from a net-zero perspective?

To achieve net zero, something like 70% of all capital has to be deployed in emerging markets. China alone is 27% of global carbon emissions, while India is the fastest growing source of emissions. So if we’re going to solve net zero, we’re going to have to solve it in emerging markets. It’s where we need to work hard as an industry to figure out how to allocate. We invest in emerging markets, including green corporate bonds and renewable energy companies in India and China driving transition. China’s CATL, for example, is the world’s biggest electric vehicle battery manufacturer. There’s a need to find opportunities in emerging markets and provide capital. That’s where we need to solve the climate crisis. If not, we aren’t going to solve it.

Company/companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.

To what degree do investors need to consider private equity to access the most interesting opportunities?

There are some cutting-edge private market opportunities in emerging economies. However, you can also access private markets via renewable energy investment trusts, which offer exposure to batteries, solar and wind. They’re liquid and tradable, even by retail investors. So investors can have their cake and eat it, to some extent.