Sustt: Ups and downs; Water, water everywhere; Carbon & cash; Clothing climate labels; Small co, big concerns

Ups and downs

Will the road to net zero be a rocky one for markets????

by Mubaasil Hassan (Sustainable Finance Specialist)

What’s happening??The transition to net-zero carbon emissions will probably lead to increased inflation and volatility in the global economy over the next few years, according to BlackRock. In its 2022 Midyear Outlook – dubbed “Back to a Volatile Future” – the asset manager suggests investors should prepare for long-term market volatility and higher inflation, with the transition likely to resemble the market conditions seen at the advent of the Covid-19 pandemic. The market has yet to fully price in the climate change impacts of the transition, BlackRock said. (ESGToday)

Why does this matter??While the transition to reach net zero may help drive macro volatility and inflation, the economic consequences of sluggish climate action are far worse. Swiss Re has previously?estimated?that the world economy could lose up to 18% of GDP from climate change if no action is taken.

Is the energy transition inflationary??In January, European Central Bank board member Isabel Schnabel?suggested?that the green transition could prove inflationary, something also breached in BlackRock’s report. Carbon-intensive energy production may fall faster than lower-carbon alternatives are phased in, which could result in supply shortages and an extended transition period of rising energy prices, according to the asset manager.

The development of carbon pricing schemes globally may also contribute to inflation. Analysts from Goldman Sachs?recently said?a rise in the cost of carbon to $100 per tonne by 2030 would add 0.25 percentage points to US inflation in the first three years, 0.3 percentage points to inflation in China and similar increases in Canada and Germany.

The energy transition is also increasing demand for raw materials used for renewables technologies and transmission networks. The International Energy Agency (IEA)?expects?a significant increase in the consumption of these materials in order to reach net zero. A rise in the price of metals like copper and lithium will increase firms’ costs, which may be passed onto consumers in the form of higher prices. In its report, BlackRock?advises?investment in such commodities as a means of gaining exposure to the transition.

The opportunities from a disorderly transition?– Due to the scale of the technological, economic and societal changes required, it’s likely the energy transition will be disruptive and disorderly. Carbon-intensive sectors will of course be hit hardest – it’s?estimated?that eight million jobs could be lost in the fossil fuel sectors by 2050.

However, a disorderly transition may also present opportunities. BlackRock sees an investment case for assets linked to the transition and advises investors to look to carbon-intensive firms with credible transition plans. Governments are also expected to introduce policies to speed up the reskilling of workers in carbon-intensive sectors. It’s?estimated?that 42 million people could be employed in renewable energy by 2050.

????Read more on the Sustt blog

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Water, water everywhere

What impact have recent heatwaves had on our planet's ice caps?

As noted above, the recent heatwave in the northern hemisphere has resulted in?six billion tonnes of water?being released into the ocean each day from Greenland’s vast ice sheet.

The rate of melting in July has been well above average levels, echoing some of the previous worst years, including 2012 and 2019. Rising temperatures are “clearly linked to global warming”, said climatologist Aslak Grinsted. Another study published in Nature Climate Change found that the two largest land-based ice sheets in Greenland and Antarctica are on course for "worst-case scenario" forecasts.

????Conserving the world's major glaciers and ice sheets will be critical in fighting climate change. Click here to read more.

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Bite-sized insights

What else we're seeing this week ??

• Capturing carbon and cash?– The UK’s carbon capture and storage (CCS) industry could be worth ￡100bn ($131bn) by 2050, according to a?report?from Offshore Energies UK. The UK government’s Net Zero Strategy sees 50 million tonnes of CO2 captured a year by 2035, however there’s some catching up to do – a separate?study?from Imperial indicates the amount of CO2 captured and stored by CCS to date has been overestimated by 30%.
• France mandates clothing climate labels?–?All items of clothing sold in France will be required to outline their?climate impact?on labels by 2023, which could include data on where the raw materials of the garment were grown, how far it has travelled and what energy source the factory was powered with. Carbon labels are increasingly being trialed on other products, such as on?food items?in some UK supermarkets, and have already been?mandated?at fuel stations in Sweden. While displaying carbon labels can help to engage more consumers on the climate impacts of individual purchasing habits, there is danger this could shift responsibility and accountability away from the brands producing the goods and on to buyers.
• Small companies, big concerns?– Small firms are taking diversity, equity and inclusion (DEI) seriously, an?Incfile survey?shows. It found 82% of US-based small businesses have prioritised DEI, with 58.4% already having made it a core of their organisation and 24.3% taking steps to increase diversity. Additionally, 52% said DEI had been integrated across most of their company, while almost 64% will continue to discuss the issue.

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