Energy security
The United Nations released the Emissions Gap Report 2022 this month. They found that the updated national pledges made by countries during the COP26 UN Climate Summit in Glasgow last year make negligible difference to the predicted 2030 emissions. In fact, these pledges will only reduce warming from 2.8°C to 2.4-2.6°C by the end of the century for conditional and unconditional pledges respectively. This is well short of the Paris Agreement goal which is to limit global warming to below 2°C, preferably 1.5°C by the end of the century, and is a level that is thought to limit severe climate events and disruptions that could exacerbate hunger, conflict and drought. The report finds that a significant reduction in greenhouse gas emissions is required in order to get back on track to limiting global warming to this important level.
The authors urge investors to stop investing in new fossil fuel projects, divest in or engage with fossil fuel and emissions intensive industries, support building renovation and invest in zero emissions vehicle, vessels, planes and transportation infrastructure. The report also highlights the importance of reducing emissions in the food system, as it accounts for one third of total global emissions.
Despite the warnings from the United Nations, many new fossil fuel projects are being approved and commissioned given the soaring energy prices. For example, the US oil rig count continues to increase and is almost back to pre-pandemic levels. In UK, BG International, an affiliate of Shell, was given regulatory approval to develop the Jackdaw gas field in the North Sea earlier this year (after it was rejected on environmental grounds in 2021) and final investment decision taken to start development of the project soon after. To us, this highlights an economy that is so reliant on fossil fuels, despite the dire warnings from scientists and authorities. Given the turmoil caused by soaring energy prices, many investors and policy makers are prioritising the short term economic benefit of increasing fossil fuel production and greenhouse gas emissions at the expense of the long term consequences.
Our approach is the opposite… Our portfolio is aligned to the findings from The Emissions Gap Report, with large investments in new renewable energy projects, enabling technologies, sustainable building products and no exposure to fossil fuel companies or companies that are causing harm. We are also looking for companies that are helping reduce emissions in the food system, and although we have a small investment to this theme in the Global Fund, we hope to allocate more capital in the future.
This note has been prepared by ELM Responsible Investments (‘ELMRI’) ABN 70 607 177 711 AFSL 520428, for Australian wholesale clients for the purposes of section 761G of the Corporations Act 2001 (Cth).
The information is not intended for general distribution or publication and must be retained in a confidential manner. Information contained herein consists of confidential proprietary information constituting the sole property of ELMRI and its investment activities; its use is restricted accordingly.
This note is for general informational purposes only and does not purport to be comprehensive or to give advice. The views expressed are the views of the writer at the time of preparation and presenting and all forecasts, assumptions, opinions, data and other information are not warranted as to accuracy or completeness and are subject to change without notice. This is not an offer document and does not constitute an offer or invitation of investment recommendation to distribute or purchase securities, shares, units or other interests to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this note. Any potential investor should consider their own circumstances and seek professional advice.
ELMRI funds, its directors, employees, representatives and associates may have an interest in the named securities.
Past performance is for illustrative purposes only and is not indicative of future performance.