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We believe the next big opportunities within the energy transition are transport and grid infrastructure. According to BNEF, transport will require between 5-8x the capital needed for renewables to 2050.¹ This is why our strategy dedicated to decarbonizing transport uses Proprietary Data Insight (PDITM) to identify the opportunities that are ripe for decarbonization based on: the cost competitiveness of the low carbon solution, the full lifecycle emission reduction and, whether the technology is commercially available.

We see the most immediate opportunities in the electrification of surface transport and
near-shore maritime as these can already be decarbonized in an economic way using commercially available technologies. In the longer term, once these technologies mature, there will be significant opportunities to invest into maritime and air segments through the production, transport, and storage of low carbon fuels.

The energy transition will not be possible without grid infrastructure to enable the electrification of the economy. For example, energy storage and micro-grids can be considered attractive given they can be invested in as standalone opportunities. The challenge for investors is that these investments can often be difficult to access as they are highly regulated activities carried out by incumbent utilities. Hydrogen and nuclear are also generating a lot of interest but we see more limited opportunities in the short term. However, they could be attractive for the long term if they can scale and become more cost competitive.

We believe the key to investing into the energy transition is to ensure that investments are truly sustainable on a holistic basis. Thinking back to the biofuels rush in the early 2000s, there were negative consequences not fully considered at the outset e.g., deforestation and the impact on land use. As part of PDI™, we’ve developed (in-house) a lifecycle assessment tool which aligns with the fundamental requirements of the ISO 14044:44. This gives us the full view of the well-to-wheel emissions profile before we consider making an investment.

As electrification is a major component of our strategy, we pay close attention to the supply chain of battery providers. We observe that the industry is evolving with several positive elements from the growth of LFP batteries (which do not use cobalt, which is an industry that historically had severe human rights issues in some sourcing locations such as DRC) to increasing the percentage of critical minerals that can be recycled at the end of a battery’s life.

Additionally, we target some of the most reputable manufacturers and will either seek information on policies or request for representation from its partners and major suppliers covering the UN Global Compact principles.

The biggest challenges in the energy transition are finding the trillions of capital required, and investing it in a way that delivers the best outcomes for the planet. Rising interest rates and inflation have increased costs, reducing the viability of many energy transition projects. At the same time, the funding pool for investments where the technology risk is less proven, or the economics are not showing a trajectory to cost parity with conventional technologies, has declined.

The availability of quality data around emerging energy transition technologies is another obstacle. Policy makers and investors are making decisions without access to the detailed information around the cost and emission profiles of the various energy transition technologies. Better data would allow capital to be allocated where it will have the biggest bang-for-buck reduction in Co2 emissions. This is why we created PDI^TM, our total cost of ownership (TCO) models, which helps the team to identify which parts of the transportation sector can be decarbonized in an economic way, leading to an efficient use of capital to reduce emissions. We believe this approach is consistent with a just transition and makes the strategy less exposed to the changing political environment and a reliance on future subsidies.

Our life cycle assessment (LCA) models allow us to understand the impact of our investments in avoiding carbon emissions. For example, it shows that investing in transport in developed markets (where the grid is relative clean) has a higher Co2 avoided per dollar invested than renewables. Whereas in developing markets, renewables tend to have more impact than transport as the grids typically have a higher emission intensity.

For some of the emerging energy transition sectors, investors know they need to take a long-term view and can take comfort from the cost declines seen in renewables and battery packs experience over the past decade. However, a greater understanding of the current and projected cost and emission profile, and a clear direction from policy makers, would make financing more plentiful and available at a lower cost.

The energy transition is at a stage where there are multiple technologies being presented as climate solutions. Not all these technologies will succeed. Through our PDI^TM, our investment team can identify the areas of transport where the low carbon option generates lower lifecycle emissions and is cost competitive with the legacy fossil-fueled equivalent.

We believe that PDITM is an essential toolkit to avoid stranded asset risks as it can assess the cost and emission profile vs. legacy technology and whether the technology is proven and fit for purpose. For example, if you look at containerships, the industry has yet to coalesce around a low carbon technology, with some looking to e-methanol while others are looking at ammonia and LNG. In just 5 years, the industry prospects of LNG as a decarbonization fuel have changed significantly as costs fluctuated significantly while the full lifecycle emission benefits are being scrutinized more carefully. This creates a high risk of a stranded assets and that uncertainly makes financing challenging.

Many investors grapple with where their investment can have the most impact. We present an Impact Return Metric which provides a quantitative assessment of the CO2-eq avoided per dollar invested (CO2/USD).

We’ve compared transport and renewables across different geographies. Our analysis shows that electrified transportation can have a higher impact return vs. renewables in countries where the grid is already relatively clean. For example, in countries with low grid emissions such as Sweden (~10 gCO2 / kWh), the Impact Return for transport can be up to 25x²Â higher than for new investments in wind, while in Poland (~720 gCO2/ kWh), investing in wind power can deliver 7x higher impact return than transport, illustrating the importance of considering grid emissions when assessing Impact Return for transport.

The continued growth in renewables is essential as an enabler for the decarbonization of the grid and wider electrification programs. As grids further decarbonize, the Impact Return for the electrification of transport will grow against renewables.

Metric such as Impact Return help outcome focused investors who want to allocate their capital towards the investment that has the most impact in terms of emissions avoided per dollar invested.