In the past, Asia has been cast as a coal-powered, climate-change laggard. The region’s gross carbon emissions are high and although per capita emissions are still low, there’s a risk of significant emissions growth as the region develops.
The good news is that leading Asian economies are increasingly committed to sustainable development and renewable energy. Many nations have announced ambitious net zero goals – South Korea and Japan by 2050, China is aiming for 2060, while India has targeted 2070.
Although countries are still in the grip of ‘the energy trilemma’ – the tension between energy reliability, affordability, and sustainability – the growing momentum behind a global energy transition should give us hope that we can create a net zero world. True, the transition will be costly. According to the International Energy Agency (IEA), annual investment will need to surge to US$5 trillion by 2030. However, this investment could potentially create millions of jobs and boost global GDP. Increasingly, APAC is where we can find the high-tech solutions that will power the net zero world.
What does it mean for investors?
For investors, there’s a spectrum of sustainable investment opportunities, from financing renewable energy projects and innovative energy-generating companies to backing advanced technology solutions. These solutions are becoming better, cheaper – and they’re being developed in Asia.
Asia leads the world in solar and wind energy, as well as the production of batteries for electric vehicles (EVs). Most EVs are powered by Korean, Chinese and Japanese battery technology. The world’s largest battery company by capacity is CATL in China, followed by LG Energy Solution in Korea. CATL is among the global leaders making and selling lithium-ion batteries and the energy storage systems needed for the energy transition. Asian companies will continue to benefit as more countries phase out internal combustion engines and focus on electric-powered public transport.
The good news is that leading Asian economies are increasingly committed to sustainable development and renewable energy.
We see a great deal of investment opportunities, particularly in China. As well as EV battery production, companies are leading in fields including renewable-energy components and energy-efficient data centres. According to the IEA, datacentres accounted for around 300 Mt CO2-eq (metric tons of carbon dioxide equivalent) in 2020 (including embodied emissions). This is the equivalent to 0.9% of energy-related greenhouse gas (GHG) emissions (or 0.6% of total GHG emissions). As the stringency around the energy efficiency of data centres increases, efficient owners and operators will gain a competitive advantage.
Nari Technology is a leading provider of power grid technology in China – the equipment and software that help distribute electricity from primary power suppliers to the electricity meters of end customers. It supplies both State Grid and South Grid, which dominate the domestic electricity distribution market. This company is well positioned for clean-tech opportunities, as China seeks to transform its power distribution network to a smart grid that is more efficient, reliable and greener. It benefits from accelerating structural investments, as the focus on renewable energy and the rollout of electric vehicles will require a full upgrade of the grid to address power curtailment and safety concerns.
Then there’s Power Grid Corporation of India. It manages the country’s national grid network and several regional networks, transmitting half of all domestic electricity. In our view, the company stands to benefit from infrastructure spending as well as from India’s push towards renewables and associated infrastructure. Already, the majority of its capital expenditure is focused on the connection and transmission of renewable energy to urban areas.
Running a strategy in APAC that is aligned to the Un Sustainable Development Goals requires a great deal of research because it can be hard to find good disclosure around company ESG (environmental, social and governance) credentials. But with due diligence and company engagement, investors can find quality opportunities. And some companies are blazing a trail to net zero with detailed, clear and credible pathways.
The world will be different in 2050. Global energy demand should be 8% less than today but powering an economy twice as big, with two billion more people. Asia is already showing us that most of our energy can come from renewables, and many of the best solutions may well come from this future-forward region.
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.