As Egypt hosts the most important sustainability event of the year, COP27, the Middle Eastern country is pushing hard on making the summit about decarbonization implementation as opposed to climate commitments. However, given the weak global economy, high inflation, and geopolitical instability, we should not expect many breakthroughs coming out of this year's summit. The over 100 countries participating will be negotiating the establishment of the Damage and Loss Fund (a fund to finance damage and losses suffered by most vulnerable countries), as well as the $ 100 billion yearly investment commitment for developing countries to address their climate adaptation and mitigation priorities. Nobody expects much progress on either front given the limited political capital of the largest polluting countries as well as the weak budget space to fill the climate financing gap.
 
While the short-term climate momentum may not look so positive, it is important also to look at the positives including the current market traction, capital markets investment and early-stage innovation that are happening across sustainability. Here are a few data points highlighting the short terms risk and the sustainability strong momentum regardless of the politics and the economy:

Climate Risk Data

  • Under the 1,5 C Net-Zero plans almost $30 trillion dollars needs to be invested by 2050. This equals roughly 4 percent of annual GDP (in 2021 money).
  • The cost of unmanaged and unpredictable climate change would be much higher as climate events would affect about 20 percent of global GDP by 2040.
  • According to Swiss-Re, by 2050 climate change could cause $23 trillion in global GDP losses corresponding to 11-14 percent off global GDP.
  • The United Nations estimates that the remaining global CO2 budget to remain within 1.5°C of global warming (the scenarios that would prevent catastrophic climate tipping point) is 400 billion tons of CO2. This budget should run out in 2030 unless decarbonization accelerates and we meet the Net-Zero targets. 

Sustainability Investment Data

  • There are currently 43 private, $1b+ climate tech companies within the 1000 global unicorn club (energy, mobility and agribusiness are the key sectors to watch). These Green startups are growing faster than their conventional competitors, and they are taking an average of 4 years to reach Unicorn status, as opposed to the 7 years.
  • Green tech valuations were very high in 2021 surpassing the general market, with a 625 per cent growth rate of newly started green tech Unicorns compared to the industry reference growth of 287 per cent.
  • Assets under management are expected to reach $41 trillion by the end of 2022 according to Bloomberg and the growth will come mostly from the US and the EU where the regulation is catching up fast. Total Environmental Social and Governance (ESG) investment is expected to reach $50 trillion by 2025. This means that every $3 invested there will be $1 invested in ESG globally. 
  • The growing demand for net-zero services and technologies is accelerating and could generate more than $12 trillion of annual sales by 2030 with key leading sectors including transport (Mckinsey).
  • In 2021 green tech companies attracted investment of > $1 trillion dollars. The overall investment expected in sustainability by 2025 is $5 trillion per year.
  • In 2002, the Davos First Mover Coalition (FMC) expanded its green transformation partnership to over 55 leading corporations that have started buying billions of dollars of decarbonizing technologies to scale up green tech “early adoption.” 
  • Sustainability investments are strongly focused on the “low hanging fruits” for decarbonization, in sectors that have lagged in terms of climate innovation such as energy (35 per cent), agriculture (33 per cent), and transport & mobility (16 per cent). In terms of geographies, most unicorns are based in the United States and Europe where venture capital funds are abundant. 

Conclusions

The transition to Green-Growth is happening and there is strong data supporting this trend regardless of the politics. While in Europe there is a “top down” trend led by regulation and politics, in the US it is “bottom up” with the private sector and capital markets leading the pack. Regardless of election cycles, bad market conditions and regulation, market participants believe there are great business opportunities around decarbonization and sustainability. We should continue to expect large inflows of capital to fuel innovation and jobs of the future as sustainability becomes a value creator and a risk reduction metric across all sectors.

The information provided by Empower Capital is for general information purposes to foster the dialogue and the discussed topics. All the information on these articles are provided in good faith. However we make no representation or warranty of any kind, expressed or implied regarding the validity, adequacy, accuracy, completeness, and reliability of any information provided.

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