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Alternative Investment

How to tap into climate change investments

Climate change efforts are transforming economies, businesses and the investment landscape around the world, creating opportunities for returns.

Investors have taken note. Climate change spending is estimated to have exceeded $500 billion in 2020 and $750bn in 2021.

In an effort to reduce carbon dioxide emissions, governments have established net-zero targets, and one fifth of the world’s top public corporations have now made some type of net-zero pledge to offset their carbon emissions.

But how can investors locate the investments they want to make in this tidal surge of possible opportunity? It is useful to consider climate change investments from two perspectives:

Stages: Being aware that opportunities range from early stage venture capital to public market leaders looking to become more sustainable. We believe that some of the more exciting investments right now are in private companies with established solutions that are ready to scale up.

Area of impact: Identifying a company’s or technology’s goal(s) that align with the change people wish to invest in. Is it intended to minimise carbon emissions? How can current infrastructure be adapted to the new realities brought about by climate change? This allows investors to pursue returns in a significant growth area.

Metamorphosis into a climate-aware economy

We anticipate four main drivers propelling the transition to a “climate-aware” economy: government legislation and pledges; falling costs of enabling technology; consumer demand; and corporate pledges and initiatives.

Governments are acting

Countries around the globe are rapidly increasing their pledges and regulations to reduce carbon emissions to net zero.

In October 2021, the UAE pledged to decrease its carbon emissions to net zero by 2050, investing Dh600bn ($163bn) over the next three decades in clean and renewable energy sources.

Furthermore, Saudi Arabia, the world’s largest oil exporter, has committed to reducing carbon emissions by 2060.


Watch: inside Dubai’s new net-zero house

Companies are making pledges

Companies committing to adopt net-zero policies by the end of the century more than tripled between 2019 and 2020.

Today, many of the world’s major organisations have committed to reaching net zero sooner.

The price of enabling solutions is dropping

The cost of key technological innovation has been falling, increasing the scalability and competitiveness of alternative energy sources.

This phenomenon is especially visible in, but not limited to, renewable energy.

Consumers are increasingly interested in sustainability

Consumer demand for sustainability-marketed items is expected to reach $140bn in yearly sales by 2023, according to researchers.

Although accounting for only 16 per cent of the market, sustainability-marketed items accounted for more than half of market growth in the past five to six years.

According to a recent PwC survey, 60 per cent of Middle Eastern customers consider themselves more environmentally conscious and the same proportion think of sustainability concerns when determining what to buy.

Climate change investing — by stage

Today, climate change investing offers numerous opportunities. People can invest in early stage start-ups or traditional companies as they adapt to new climate change technology.

Right now, we are seeing some of the most intriguing prospects in private organisations that are taking existing solutions and making them more scalable, efficient and cost-effective for use by consumers and established businesses.

Using electric vehicles as an example, investors could:

  • Invest in mid to late-stage companies that are seeking to provide electric vehicle charging stations, and finding ways for these stations to fit into existing electricity grids
  • Take the added risk to invest in early stage, next-generation technology such as electric aircraft

Generally, private funding may provide more growth because several technology solutions — such as carbon capture, hydrogen and long-duration battery storage — are still in development.

It is vital to remember that such technology solutions are frequently in the early stages of development, indicating potential risks and should be carefully assessed.


Saudi Arabia pledges to reach net-zero carbon emissions — in pictures

Considering the impact

Aside from the financial potential, some investors are driven to engage in climate solutions because of the possible impact of tackling the threat of climate change.

Investors have a variety of options to consider in order to make a difference. These solutions are classified as the “three Rs”: reduce, remove and retrofit.

Reduce: Emissions reduction, which includes the decarbonisation of the energy supply, has been a major focus of climate investments. There are also less well-known opportunities to reduce energy demand and transform other (non-energy) carbon-intensive processes.

Remove: When carbon-neutral replacements are unavailable, carbon removal is required to achieve net zero. Excess greenhouse gases from the atmosphere can be eliminated in two ways: naturally and mechanically. Greenhouse gases can even be removed from the ocean.

Retrofit: The World Bank estimates that up to $500bn will be needed each year until 2050 to globally adapt to climate change. Yet, despite the fact that adaptation incurs upfront expenses, it can lead to several benefits in the form of averting damage.

Overall, projected government action to decarbonise our globe strengthens the case for climate-focused investments.

Despite the Paris Agreement’s pledges, cumulative global carbon dioxide emissions are on track to exceed the global carbon budget by the mid-2030s if current trends continue.

As a result, governments will be under pressure to do more and urge the private sector to participate.

Thus, investing in climate solutions, renewable energy and sustainable ventures offers enormous growth potential and may yield higher long-term profits.

Mark Hempstead is head of alternative investments for Europe, the Middle East and Africa at JP Morgan Private Bank

Updated: November 15, 2022, 4:00 AM

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