16th April 2014
The latest UN report on climate change reinforces the view that environmental investing is essentially an investment in the long term structural growth of the global economy Charlie Thomas, manager of the Jupiter Ecology Fund is arguing.
On Sunday 13th of April, the UN Intergovernmental Panel on Climate Change (IPCC)  released the last of its three reports that form the 5th assessment on climate change, entitled Climate Change 2014: Mitigation of Climate Change. The report concludes that the goal of limiting global warming to 2oC is still attainable, although only if urgent action is taken: the use of low carbon energy would have to triple or quadruple by 2050.
However, the report has highlighted the rising number of cost-effective solutions available to governments looking to tackle global warming.
Thomas says the report dispels a key concern that tackling the causes of climate change, which the IPCC’s scientific assessment in September showed to be “unequivocally” caused by human activity, will be prohibitively expensive.
It estimates that a transition away from fossil fuels to renewable energy and a broad increase in energy efficiency would cut a mere 0.06% out of an assumed global economic growth rate of between 1.3% and 3.0% per annum.
The ‘to-do’ list
According to the report, decarbonisation and improved efficiency would have to occur across a number of industries. The electricity sector would have to make the most profound adjustments to decarbonise production processes, which would result in a cut in revenues for coal and oil producers.
Changes would also need to occur in areas such as transport, buildings, heavy industry and agriculture. Absent from the report were the benefits of cutting greenhouse emissions, such as increased energy security and reduced pollution.
While the IPCC report suggests that the goal of limiting global warming is attainable, it will not be achieved without a significant change in investment patterns and international cooperation. Thomas says the fund’s team will be monitoring what impact these reports have on government policy and business strategy, but have already noted increased debate over climate adaptation and mitigation following the recent extreme weather events in the US and UK.
What does it mean for investors?
From an investment point of view Thomas argues that the report’s findings add weight to his central investment thesis that environmental investing is about investing in the long term structural growth of the global economy.
Most notably, he says, the report highlights the advances made in the area of renewable energy, where a maturing industry whose technology is a cost effective alternative to conventional energy source and can be used at a significant scale.
In 2012 alone, alternative energy accounted for half the new electricity capacity added globally and the rapid acceleration of renewable use and suggested improvements to energy efficiency should bode well for our investments in these areas.
He adds: “The dynamics we are seeing in solar at the moment are particularly striking. For countries in the sunniest parts of the world, utility scale solar is already cheaper than oil and Asian liquefied natural gas (LNG). And unlike the costs of fossil fuel extraction which is becoming more difficult and expensive, solar technology is improving and becoming cheaper. These dynamics alone create a strong economic incentive for greater adoption of solar technology, a market which only made up 0.17% of the total supply of energy worldwide in 2012.
“While we welcome this latest IPCC report, we are of course mindful that it is very difficult to quantify its immediate tangible benefits. We therefore remain very much focused on the current fundamental attributes of the companies in which we invest, the strength of their technologies and the prevailing trends in the industries in which they operate.”
 Professor Ottmar Edenhofer, the co-chair of working group III Mitigation of Climate Change. Source: Guardian http://www.theguardian.com/
 Based on MMBTU (i.e. one million British Thermal Units). Source: Bernstein Research: Energy & Power Blast: Equal and Opposite… If Solar Wins, Who Loses? 4 April 2014
 Source: Bernstein Research: Energy & Power Blast: Equal and Opposite… If Solar Wins, Who Loses? 4 April 2014