Key takeaways

• The transition from fossil fuels to renewable energy is the most impactful change for the industrial economy and is expected to accelerate into 2030 and continue to at least 2050.
• Among the key long-term growth opportunities are copper for economic electrification, raw materials used in battery and electric vehicle production, renewable energy and agricultural and food science.
• The accelerating adoption of recycling, the circular economy concept and the shift towards hydrogen as a source of clean energy add to the diverse opportunity set offered by natural resource companies.

The first United Nations Climate Change ‘Conference of the Parties’, also known as ‘COP’ was held in Berlin in March 1995 and twenty years later, the Paris Agreement was adopted in December 2015. Today, 197 countries have participated in the discussions and negotiated climate change commitments. Massive changes are reshaping the industrial economy, with the transition from fossil fuels to renewable energy being the most impactful. Expectations are for this to accelerate into 2030 and continue to at least 2050 in line with the Paris Agreement’s aim of achieving a climate neutral world by mid-century.

An important role to play across multiple resource sectors

Starting with coal and now oil, soon natural gas will also be given diminished investment attention due to higher carbon abatement hurdles. The oil and gas sector and businesses in general need to dramatically change their businesses to thrive in the long term. We are already seeing diesel and petrol vehicles being phased out, while electric vehicle manufacturing and sales are ramping up.

In agriculture, carbon emissions also require management, while in our cities and buildings, society can collectively have a large impact through the widespread adoption of energy-efficient inclusions, using renewable power sources and breaking wasteful habits, such as lighting, heating or cooling office blocks unnecessarily.

CO₂ accounts for about 76% of total global greenhouse gas (GHG) emissions. Methane, primarily from agriculture, contributes circa 16%, while nitrous oxide, mostly from industry and agriculture, contributes approximately 6% of emissions, according to the US Environmental Protection Agency.

Global man-made greenhouse gas emissions

Across the globe, there must be increased efforts not just to recycle, but to integrate industries into a truly ‘circular economy’ where products can be recycled at the end of their life by channelling them back into production, thereby reducing waste disposal and raw material extraction requirements.

Mega trends creating multi-decade opportunities

We are closely monitoring the developments in the transition and engaging with resource companies on the same. In our view, the key long-term growth opportunities across the global natural resources sector include copper for economic electrification, raw materials used in battery and electric vehicle production, renewable energy and the services that support them, as well as agricultural and food science in the production of healthy and sustainable food. More broadly, these industries are supported and benefit from synergies created by the accelerating adoption of recycling, the concept of the circular economy and the shift towards hydrogen as a source of clean energy. All these areas add to the diverse opportunity set offered by natural resource companies.

Carbon won’t disappear quickly, but as consumption falls considerably and energy gradually transitions to net zero carbon, additional costs or taxes will progressively make these industries less attractive to investors.

It is hard to imagine, but pollution must be paid for, prevented and remediated. Other industries have gone down the road of disruption before – in entertainment we have witnessed VHS videos being superseded by DVDs, BlueRay and ultimately the cloud via streaming – the key difference here is that ESG adoption is the catalyst, rather than new technology making older ones redundant. Established industries that negatively affect the planet are now in decline as more sustainable alternatives come to the fore and COP26 commitments force countries to make meaningful, coordinated change.

 

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