In early 2021, when Christoph storm hit the north of England, our colleagues in Manchester experienced extreme flooding. A few months later, the same thing happened to our colleagues in London. Then our colleagues from Bangalore. Then our colleagues in New York. Such events should be rare and unprecedented, but they are becoming commonplace around the world, causing damage, disruption, and in some cases death on their way.
For many, the answer to the challenge of climate change lies in technology. The majority of greenhouse gas (GHG) emissions come from a few sectors, each of which is interrupted by technology:
Automotive industry: The automotive industry is seeing a break with the evolution of battery and fuel cell technology. The demand for electric vehicles (EVs) is growing – the pace of this technological breakthrough is amazing – three years ago, electric vehicles accounted for only 2% of all new U.S. car sales. One year later, it doubled to 4%. Last year it doubled again to 8%, and this year it has doubled again to 16%. Within 10 years, most new car sales will be electric (source: iea.org). This will affect the entire value chain of cars, both up and down sectors / activities. Therefore, banks need a loan-level understanding of how risks fall down the value chain and the potential impact of carbon-reduction levers (e.g., technological disruption) across the sector.
Construction and Construction: The construction and construction industry accounts for a significant share of GHG emissions, as the materials used, as well as the heating, cooling and lighting of buildings, contribute to the carbon footprint of the industry. Those in the industry generally agree that building more green infrastructure is key to reducing emissions from the sector. As a result, more and more countries are implementing building energy codes, green building certification is increasing, and investments in energy-efficient technology, such as smart homes and automation systems, are increasing.
Manufacturing: Until now, manufacturing companies have been fairly protected from regulatory pressures, but are now facing increasing pressure from shareholders and consumers. To address this, manufacturers need to consider the implications for their entire value chain: the design, supply, construction, and operation phases. New technologies that reduce steps in manufacturing, the use of materials or the number of parts will reduce the energy embedded in the value chain and reduce the use of raw materials. This is also the case with technologies that allow the manufacture of materials or components that increase recycling and recyclability.
Oil and gas: Directly and indirectly, the oil and gas industry accounts for 42% of global GHG emissions. As a result, lenders are increasing shareholder pressure to reduce lending to industry, and rising fuel prices are catalyzing efforts by economies and governments around the world to switch to sustainable energy solutions. Fortunately, renewable technologies have become increasingly cheaper: the cost of solar in the U.S. has dropped by more than 70 percent since 2011, and the cost of wind has dropped by nearly two-thirds.
Agriculture: The agricultural sector is prepared for the interruptions and agritech (agricultural technology) is facilitating this. Technologies include fine-grained agriculture, protein alternatives, processed meat, and carbon sinks. Research suggests that the global agricultural technology market will be worth $ 22.5 billion by 2025, up from $ 9 billion by 2020.
All of these technologies will require investment – according to McKinsey, the net cost of the world to reach zero in 2050 would be £ 257 trillion or £ 9.2 trillion a year. This is a great opportunity for lenders to help commercial customers move to the green economy, given the level of investment required.
The opinions expressed above are those of the author.
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