Climate Finance Strategies and Global Decarbonisation

The founder and managing director of Emmet Capital Asset Management, Mr. Matt Dever.

The Emmet Capital Climate Finance Equity Fund is an Australian unit trust that invests in global listed equities with the aim of reducing or mitigating climate change.

The fund follows a thematic strategy focused on climate finance, investing in sectors such as energy transformation, energy efficiency,

storage, transport and related infrastructure and water management.

Its goal is to outperform the MSCI All Countries World Index and generate long-term consistent returns.

Matt has over 25 years of experience in energy, clean energy, emissions trading and corporate finance.

He has worked across Australia, Asia and Europe in the developing country for climate finance.

Welcome, Matt.

Thank you, Angelina, and great to be here today.

As mentioned, I'm going to be talking today about climate finance strategies and global decarbonization.

So let's start by defining decarbonization and climate finance.

And it's important to understand the two terms as the success of decarbonization relies heavily on climate finance.

So climate finance to start with is a term given to any financial resource that addresses the impacts of climate change.

So typically climate finance is directed towards renewable energy, energy efficiency initiatives, low emission transport, and other emission reduction activities.

So climate finance is generated at both the country and business slash industry level and can take the form of direct investment, green bonds, project finance,

and government funded support.

Now decarbonisation is the process of reducing or eliminating emissions of greenhouse gas from sectors, industries and activities with the express purpose of reducing or mitigating climate change.

So many countries are embarking on decarbonisation efforts stemming from the Paris Climate Accords of 2015 in an effort to limit the rising temperature to 1.5 degrees.

So hopefully that paints the picture in the context of the discussion today.

We're gonna move on to some of the climate finance strategies, which are essential if the world is to achieve its decarbonization goals.

So a significant amount of both public and private funding is required in the form of climate finance strategies if the world is to meet its decarbonization goals.

This so-called responsible investing is increasing in popularity with investors seeking to generate both financial returns and generate positive environmental outcomes.

So the graph on the right here demonstrates the global investments in the energy transition by sector from 2004 to 2022.

As is evident, there has been a significant increase in investment across energy transition technologies and projects.

The largest increase has been via renewable energy and electrified transport with the growing trend towards divestment from fossil fuels.

So we're seeing investors focusing on climate strategies as they assess the risk of fossil fuels and seek investments in low carbon alternatives, which can generate attractive returns.

So technology is a crucial part of the energy transition and decarbonization process.

Like any new industry or market, costs become a major driver in terms of adoption of new technology.

Over the last 15 years, we've seen significant cost improvements in renewable energy transport and energy efficiency technology, providing competition to traditional fossil fuel assets.

Examples include advances in wind,

and solar technology, innovations in battery storage and electric vehicle development, and technologies such as carbon capture and storage and hydrogen fuel cells are also developing rapidly.

Industries themselves are also taking the lead as they realise the need to transition to net zero emissions by 2030 or 2050.

In particular, we're seeing important technological advancements via the aviation sector as well as in the high fossil fuel industry of steel production.

So these industries are really taking a lead in terms of developing technologies to reduce their emissions.

So what are the decarbonisation trends that we're seeing in the global economy?

Currently, there's a significant progress worldwide towards decarbonisation and the numbers speak for themselves.

The growth numbers are quite amazing.

For example, global renewable energy capacity is set to expand by 2,400 gigawatts or 2.4 million megawatts.

And to put that in context, the generation capacity of the Australian national electricity market is 54,000 megawatts.

So on a global scale, we're just talking about renewable energy, it's a significant increase.

In 2020, the global wind capacity exceeded 906 gigawatts or 906,000 megawatts and continues to grow.

In 2022, global sales of electric vehicles exceeded 10 million, a 50% increase year on year.

So really the numbers speak for themselves.

The graph here demonstrates the increase in global climate finance over the decade 2011 to 2021.

So averaging roughly 7% compound, the increase in climate finance added 480 billion per year over that period or 4.8 trillion.

Excuse me, now that's a significant increase.

on an annual basis.

However, the interesting aspect of this is estimates suggest that the world will actually need at least 4.3 trillion in annual finance flows by 2030.

So that's a significant increase even on what we've seen so far.

So what are the trends we're seeing in decarbonisation around the world?

in the major economies.

So I'm starting with Europe.

Europe is in some ways a bit of a benchmark when it comes to decarbonisation.

The EU set ambitious targets for reducing greenhouse gas emissions and achieving a climate neutral outcome by 2050.

Sweden, Denmark and Germany, for instance, have already made impressive strides in terms of decarbonisation, particularly with a focus on renewable energy sources such as wind and solar power and energy efficiency measures.

So really, the EU continues to lead the way in this area.

The United States, not dissimilar to the Australian situation, has faced significant challenges

towards decarbonisation.

They've been slow to adopt technologies and policies, and their political system, as I said, similar to Australia's, is fractured when it comes to climate policy.

There are signs of progress, however, in the states.

Many of the independent states themselves have set their own decarbonisation targets, for example, in California, and the introduction

by the Biden government of the Inflation Reduction Act appears to be a game changer for a number of technologies.

Turning to Asia, in terms of decarbonization, Asia has many challenges, not least of which is its heavy reliance on coal for any energy production.

Now, as we've seen through some of the charts already,

in the chance to come.

China is making significant advances within its industries and society in terms of decarbonisation.

That's not to say they're not still developing fossil fuel sources of energy.

However, they are in terms of actual capacity and volume generating significant

significant advances in decarbonisation.

So India in addition is a significant developer of renewable energy and they have a number of energy efficiency measures that they're installing.

So Asia is an interesting paradox that it has enormous potential but with the developing economies they still have

a number of challenges they must face.

So what are the investment opportunities with decarbonisation and climate finance?

So as stated by the International Energy Agency, for every dollar invested in fossil fuels, about $1.7 are now going into clean energy.

So five years ago, this was a one to one ratio.

So the shiny example is investment in solar, which is set to overtake the amount of investment going into oil production for the first time, which is quite significant.

So quite clearly investors are recognising the potential of decarbonisation and a shift towards a more sustainable and responsible investments landscape.

So turning to renewable energy investment,

Investment in renewable energy has grown more than threefold over the past decade, outpacing investment in fossil fuels.

So solar and wind are now cheaper than coal or gas in many parts of the world.

And as we can see here on this graph, it provides the increase in annual clean energy investment in selected countries and regions over a five-year period, 2019 to 2023.

And once again, we can see the largest increase in renewable energy over this period has come from China.

Coupled with the US and EU, they account for the majority of the new annual investment in renewable energy.

So what are we saying in terms of investment opportunities in energy efficiency?

So energy efficiency investments typically take the form of upgrading equipment and appliances,

improving building insulation and implementing smart energy management systems.

All these advancements involve the reduction in energy use and or energy intensity.

As can be seen in this graph, energy efficient buildings have been the majority of investment over the period 2015 to 2022.

Industry itself has found it difficult to replicate this, but it's showing potential in recent years.

The other interesting aspect of this graph is the right hand side, which demonstrates the significant additional investment that is required in energy efficiency to achieve a net zero outcome by 2030.

So what about the investment opportunities we're seeing in the transport sector?

Well, we've seen a significant increase in the demand for EVs over the last 10 years.

And this is expected to grow exponentially in the coming years.

As can be seen in the graph on the right-hand side, which shows electric vehicle sales share by vehicle type and country over a 12-year period.

Once again, China is the outperformer in all categories, including cars and vans, buses, trucks, and two-wheelers.

the other countries are playing catch up.

And we're seeing obviously in North America, a significant increase in investment, both in terms of electric vehicles and the likes of Tesla and Rivian, but also in the infrastructure that is required to facilitate the charging of the vehicles.

So where has EMET Capital,

asset management positioning itself in the context of these investment opportunities.

So we launched the Emit Capital Climate Finance Equity Fund, which is an Australian domicile managed fund investing in global listed equities.

And the focus is on those companies at the forefront of efforts to achieve a net zero outcome.

So we invest in the following areas, energy transformation or renewables, energy efficiency and storage,

such as reducing your energy intensity, but also looking at battery technology, transport and infrastructure, so electric vehicles and charging stations.

And while it's not directly related to decarbonisation, we also invest in water management, which is obviously a byproduct of the whole climate change scenario.

In addition, as part of our analysis, we incorporate ESG and impact values scorecards for all individual investments and the portfolio in aggregate, just to add weight to our climate finance focus.

Our investment strategy is underpinned by our responsible investment policy and our stewardship activity policy.

So what is the future of decarbonisation?

So quite clearly the future is both challenging, but exciting.

So the challenge is the significant investment required to achieve the decarbonisation results that we're seeing, but also to ensure that energy security is maintained.

Clearly the potential benefits of a decarbonised future are enormous, including cleaner air and water, improved public health, and a more sustainable and resilient economy.

So with continued investment in technology and policy, we expect to see greater opportunities emerge and Emit Capital are at the forefront of those opportunities as they arise.

Thank you.

Thanks, Matt.

In the interest of time, I probably have just one question for you.

Sure.

What role is AI playing in decarbonisation of the global economy?

Thanks, Angela.

It's a really good question and very topical at the moment, obviously.

AI seems to be on the lips of all investors, and particularly in the area of energy transition.

AI is playing a significant role in decarbonisation through enabling innovative solutions, optimising processes and providing insights to address climate change.

So some of the examples of AI application within the energy transition sector include energy optimisation and demand management, renewable energy integration, smart buildings and energy efficiency and industrial process optimisation.

So AI is key to policymakers and businesses making important decisions on the transition to low carbon outcomes and the allocation of resources effectively.

I think it's important also to recognise though that AI is just a tool and it needs to be used with careful consideration in terms of particularly ethical implications and some of the data privacy

But for Emit Capital Asset Management, we're taking a cautious approach to AI, but we recognise that as it develops further, it will play an integral role in the decarbonisation of the economy.

Thank you, Matt.

It's so great to see you.

Have a great day.

Thank you.