“To keep global warming to no more than 1.5°C – as called for in the Paris Agreement – emissions need to be reduced by 45% by 2030 and reach net zero by 2050.” – United Nations
There are very few scenarios for which large-scale, global, macroeconomic trends intentionally lead growth and investment in a clear and undeniable direction. We think the transition to a net-zero economy is one such scenario that could provide a key investment opportunity for long-term growth across a variety of sectors. In the Paris Agreement, more than 70 countries, 1,200 companies, 1,000 cities, 1,000 educational institutions, and 400 financial institutions pledged to halve global emissions by 2030(1). To achieve a net-zero economy by 2050, the spending trends will need to be reversed from the current 65% of total spending going toward high-emission assets to 70% of total spending going toward low-emission assets(2).
Over $500 billion is currently invested in global decarbonization while financial pledges at COP26 (the 2021 United Nations Climate Change Conference) aim for roughly $130 trillion to be invested in the net-zero economy over the next three decades(3). Any combination of the following three strategies offers potential investment and growth opportunities for a diversified net-zero portfolio: decarbonizing high-emission products and processes, substituting high-emission products with low-emission products, and producing low-emission inputs, services, and infrastructure. Within those strategies, we think the three industries with the greatest opportunity for growth are mobility, energy, and buildings(2).
Today, the energy sector is responsible for three-fourths of global emissions(1). In line with the decarbonization strategy, investing in net-zero does not mean divesting from carbon intensive industries like oil and gas completely. There are companies within those industries for which investments can help fund their transition to decarbonization. Such investments help diversify an eco-friendly portfolio and make a significant impact toward net-zero.
To illustrate the second strategy of low-emission substitutions, we believe the renewable energy sector has one of the largest growth opportunities of any sector over the next several decades. Using the Net Zero 2050 scenario from the Network for Greening the Financial System (NGFS), oil and gas production is projected to decrease 55-70% and coal production would virtually cease by 2050(2). In response, the US Department of Energy aims to significantly expand offshore wind and cut solar energy costs by 60%(4). Similarly, electric cars are projected to increase from 5% of new car sales today to essentially the entire market by 2050. The same trends can be said for the agriculture sector as fewer people eat high-emitting meats like beef and transition to poultry and plant-based alternatives. In these and many other sectors, a loss of high-emission products brings bigger gains in low-emission substitutes across the economy.
Due to its relative nascency, we believe the third strategy of investing in low-emission inputs and services offers potentially bigger payouts for more risk-seeking investors who want to get in early on emerging low-carbon technologies. Over $160 billion in private investment currently supports the low-carbon tech sector(3). Less risky investment opportunities in low-carbon solutions lie in inputs like lithium and cobalt, physical assets like solar panels, services like forest management, and infrastructure like EV charging stations. Considering that EVs are projected to dominate car sales over the next several decades, investing in charging stations alone could represent a significant growth opportunity, let alone the minerals used to create their batteries.
A common misconception of eco-friendly investment is that it offers limited opportunities within a sliver of the economy. But incorporating a variety of decarbonization, low-carbon substitution, and low-emission inputs into a net-zero investment strategy has the potential to touch nearly every sector of the economy, in companies large and small, nascent and traditional. In fact, we believe investing in a net-zero economy has the potential to reduce risk over time as low-carbon solutions enhance our resiliency and adaptability to volatile weather, political shifts, and temporary economic swings. Not only is net-zero investment an ethical investment strategy, but we feel it is also a smart investment strategy for long-term growth.
TrueShares ESG Active Opportunities ETF (ECOZ) invests in industry leaders that have shown a willingness to champion the characteristics of ESG. With a focus on low carbon footprint, ECOZ seeks a portfolio with substantially lower greenhouse gas intensity than the leading ESG ETFs, and aims for less than a quarter of the S&P 500 representative emissions.
Learn more about TrueShares ESG Active Opportunities ETF (ECOZ) at www.truesharesetfs.com/ecoz.