We believe the energy transition creates a once-in-a-generation investment opportunity. We use a three-pillar framework – Leaders, Adaptors and Solutions – to identify climate change opportunities across different themes.
How does this look in practice?
Leaders – companies with ambitious and credible decarbonisation plans
Energy accounts for over 75% of global emissions, with the production of heat and electricity contributing almost half of those emissions each year1. As a result, the utilities sector plays a paramount role in driving emission reductions. Decarbonising utilities is crucial, as it paves the way for a carbon-free grid, enabling reductions in other high-emission sectors like buildings and transportation.
EDP is seen as a global leader in the renewable energy sector and ranks among the largest wind energy producers worldwide.
EDP, a Portuguese utility, is regarded as a transition leader in our climate transition framework. The company not only sets ambitious decarbonisation targets but also consistently achieves them while setting even more aggressive goals. By 2030, EDP aims to reduce its specific CO2 emissions by 98% compared to 2015, which is one of the most ambitious targets in the sector. Moreover, EDP is seen as a global leader in the renewable energy sector and ranks among the largest wind energy producers worldwide.
To provide context, the average emission reductions across scope* 1 and 2 for the utility sector by 2030 is only projected to reach 23%2. EDP, however, has committed to phasing out all gas-powered generation, making it one of the first European generation utilities to pursue a fossil-fuel-free future in the near term. EDP plans to spend €25 billion by 2026 to nearly double its renewable energy capacity.
Adaptors – companies and countries helping society adapt to a changing climate
Example: Manila Water
The world needs to urgently reduce emissions to mitigate the most harmful effects of climate change. Even under the most optimistic decarbonisation scenarios, global temperatures will rise further. Extreme weather events will become more frequent and severe. Adaptation to these risks must run alongside climate change mitigation. Manila Water is a company doing just that. According to the EU’s INFORM project, the Philippines – home to 110 million people – is the country most at risk of climate change physical hazards. Rising sea levels, increasing typhoon frequency, flooding, heatwaves and droughts threaten the country. This is particularly true in its coastal capital, where roads and homes must regularly be raised to avoid water surges from sea level rises that are happening three times as fast as the global average.
Manila Water provides access to clean water to over six million people
Manila Water provides access to clean water to over six million people and is investing heavily to ensure it can continue providing this service. Building the infrastructure to reduce leaks, treat more used water and connect to new major sources in the coming years will help the company hit its 2025 goal of increasing its supply buffer to at least 15%. Additionally, the company has nurtured 1.2 million trees since 2006 to support and enhance existing water sources. We believe Manila Water’s track record and commitments will help one of the world's most at-risk populations adapt to climate change.
Solutions – businesses whose products and services help the wider economy decarbonise
As owner and operator of Eurotunnel, Getlink provides one of the least energy and emissions-intensive means of transportation between the UK and France. Powered largely by fossil-fuel-free energy, its electric shuttle trains save over 500,000 tonnes of CO2 annually compared to the alternative ferry route. Additionally, the freight and passenger rail operators that use its tunnels – including the Eurostar – are many times more efficient than the alternatives (HGVs, driving, flying). The company estimates that this saves close to 1,400,000 tonnes of CO2 annually.
Getlink estimates that its business helps others reduce emissions by over two million tonnes a year.
When combined with further avoided emissions from its own freight rail operations, Getlink estimates that its business helps others reduce emissions by over two million tonnes a year. That’s the equivalent of removing the emissions of around 1.3 million cars driving on UK roads each year. Furthermore, it is nearly 30 times more emissions than Getlink’s own carbon footprint, making it an unequivocal climate solutions company.
Not resting on its laurels, Getlink is working to eliminate waste from its operations and bring down emissions from refrigerants and fire extinguishing agents in its tunnels. Its latest project, Eleclink, connects the UK electricity grid to France’s via cables in the tunnel, boosting the capacity between the two countries by 50%. This will enable more efficient electricity generation and distribution in both countries as more renewables are added to the mix.
These are just three of the companies that we believe are leading the way in the fight against climate change. However, much work still needs to be done if we are to reach a net zero world. Many sectors remain underfunded or are still evolving. As asset managers, we can therefore play a vital role in directing capital to where it’s most needed. For our clients, this means they can potentially help tackle climate change while seeking an attractive financial return.
Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance. Past performance is not a guide to future results.
*Scope 1 emissions— Greenhouse Gas (GHG) emissions that a company makes directly. Scope 2 emissions — GHG emissions associated with the power a company purchases.
- Source: CDP, SBTi, abrdn June 2023
- Source: Causes and effects of Climate Change, United Nations