Why is net-zero a $50 trillion opportunity for ESG investors?

Posted: 10 March 2022 1:47 pm
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Net-zero emissions has been labelled "the biggest opportunity since the Internet", but is it too late to jump on the trend?

Current geopolitical tensions and extreme weather conditions are likely to accelerate the world's transition to net-zero, with an investment group calling it a once-in-a-lifetime opportunity.

During his latest media briefing, Munro Partners founder and chief investment officer Nick Griffin notes climate change is similar to the start of the Internet boom.

"The work we do here [on climate] will be the start of the biggest S curve for the next 30 years," he said.

"It is obviously the biggest opportunity today to look on a 10-year time horizon and invest."

Conservatively a $50 trillion opportunity

According to Griffin, while the cost of climate action isn't cheap, failure to do anything will cost economies more.

And investors are demanding action on climate.

As such, businesses are being forced into "doing the right thing" which is creating a strong opportunity for investors.

"We've seen a lot of numbers out there and estimates from different places, the answer is it's a big number," Griffin said.

"We are saying it will cost roughly $50 trillion over the next 30 years. I've seen numbers as high as $100 trillion."

While the cost is large, he notes that so is the opportunity for investors.

Griffin points out that the $50 trillion it is going to cost to decarbonise the planet will be in a broad range of areas. Using the example of the mining company BHP, Griffin explains that the multinational business will need to reduce its emissions from both its building and mine sites, which creates different opportunities for companies working towards net-zero emissions.

"The one thing you should think about here is, if that is $50 trillion to decarbonise the planet, then that's $50 trillion in revenue for the companies that will decarbonise the planet," he explains.

EVs to be the next smartphones?

Much like the smartphone which took over mainstream sales, Griffin believes electric vehicles could follow a similar trajectory.

"Mobile phones didn't grow, but smartphones went from 10% to 80% (of sales) and ultimately created Apple which is the biggest company in the world," he said.

Cars are going through the same transition.

Globally, there are currently around 90 million cars being sold per year. And while not every car will immediately become electric, Griffin believes there's an inflection point with new EV sales lifting compared with its competitors.

"Electric cars are basically where smartphones were 15 years ago."

"The shift is very much happening in Europe, 30% of every car sold in December 2021 was a plug-in or electric vehicle.

"Over 15% of every vehicle sold in China was a plug-in or electric vehicle," he said.

While Griffin did highlight Australia and the United States are still lagging behind with around 5% of new vehicles being electric, he did point out that a surge in new options for consumers is likely to drive the trend.

He also explains that the likes of Tesla, which could be the structural winner, is not necessarily what investors need to be buying.

"You could look at Tesla, but the biggest and easiest opportunity is in semiconductors. Ultimately, electric cars are driven mainly by these things called power semiconductors. Effectively, you have taken a battery and turned it into torque," he said.

"So you need a lot of semiconductors."

"And from that point of view you get this huge uplift in semi content per car. We think from roughly $400 per car to roughly $1,000 per car. And this happens regardless of whether you sell more cars or not."

4 key areas to look at

Highlighting numbers from a European investment bank, partner and portfolio manager at Munro Partners James Tsinidis notes there are 10 areas where governments and institutions will have to spend big in order to decarbonise.

However, he highlights the 4 main places that his fund is looking at:

  1. Clean energy
  2. Circular economy
  3. Clean transport
  4. Energy efficiency

"Because we are investing in a portfolio that enables the decarbonisation of the planet, you end up in more companies that are building and making things," he said.

"So that leads you to more industrial type companies, utilities and, less so, tech."

The bottom line

This could be the next mega trend.

Regardless of any personal political feelings towards net-zero, a structural change is coming.

In the same vein as the Internet of things, simply investing in net-zero is not a prudent strategy. Instead, it is important to understand what you are buying and diversify accordingly.

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