Generation Investment Management, a leader in sustainable investment, has released its eighth Sustainability Trends Report, examining the global transition to a low-emissions economy. This year’s report highlights the urgent need for tangible action to match climate promises, warning that without the necessary resolve, progress may stall. It assesses required changes across critical sectors: power, transportation, buildings, industry, land, food, and climate finance.
Al Gore’s Perspective
Al Gore, Chairman and Founding Partner of Generation Investment Management, emphasised that while innovative solutions to the climate crisis are increasingly available, the gap between intentions and actions remains alarming. He remarked, “Despite the hope generated by last year’s international climate negotiations, where a commitment to transition away from fossil fuels was made, actual progress is lacking. The collective capacity to address the climate crisis is within reach, but a widespread lack of courage threatens to impede the necessary advancements.”
Progress in Transitioning from Fossil Fuels
The United Nations Climate Change Conference (COP28) held in Dubai in December 2023 marked a significant milestone, with the transition from fossil fuels being formally recognised as a global goal in international law. Despite the considerable promise of this commitment, the language used in the agreement is somewhat ambiguous, lacking specificity on execution. However, participating countries agreed to ambitious targets, including tripling the world’s renewable electricity capacity by 2030, paving the way for a comprehensive shift towards an ‘electrify everything’ strategy.
Challenges Ahead
Recent trends have revealed a disheartening setback in climate commitments. Political pressures and backlash against sustainable investing have led to diminished capital flow into green initiatives, particularly within the financial services sector. Many companies in the oil and gas industry are retracting their investments in alternative energy while simultaneously increasing their fossil fuel operations, widening the gap between their net-zero rhetoric and actual practices.
Yet, amid this bleak outlook, signs of hope emerge. The rapid growth of renewable electricity, particularly solar energy, is noteworthy, with significant decreases in power production emissions in various regions. Additionally, electricity demand is witnessing a revival in developed markets, indicating that efforts to promote electrification are yielding positive results. To fully harness this momentum, substantial upgrades to the electrical grid are essential, necessitating decisive actions from governments to streamline regulations and improve planning.
Geopolitical Influences
The transition to a sustainable energy future hinges on cooperation and commitment. However, geopolitical tensions pose a considerable threat to progress. China has emerged as the leading investor in clean energy, dominating the production of solar panels and electric vehicles. Nonetheless, the nation’s increasingly authoritarian stance under Xi Jinping has strained relations with global partners, potentially jeopardising collaborative efforts in clean energy development.
The upcoming US elections will also influence the trajectory of climate action. While the Inflation Reduction Act has laid a solid foundation for change, the broader political climate suggests potential challenges in maintaining momentum for international cooperation on climate goals.
Key Trends and Developments
- Power Sector: Renewable energy, particularly solar power, is expanding rapidly. However, increasing demand for electricity, driven by new data centres and electric vehicles, raises questions about when emissions will start to decline.
- Transport: The shift to electric vehicles faces obstacles in some markets, particularly the US, while countries like China make significant strides in electric vehicle adoption.
- Buildings: Emissions reduction in the buildings sector is lagging, with urbanisation outpacing progress in building codes. Heat pumps offer a glimmer of hope in specific regions.
- Industry: Movement in the industrial sector is slow, but recent initiatives for low-emissions steel production using clean hydrogen indicate progress. Tackling plastic pollution remains crucial, as it significantly contributes to carbon emissions.
- People, Land & Food: Climate change exacerbates global hunger, necessitating urgent government intervention to secure food supplies and promote sustainable agricultural practices.
- Financing the Transition: Clean energy investment has reached a positive ratio of nearly $2 for clean energy infrastructure for every $1 invested in fossil fuels. However, investment must accelerate to meet global climate goals.
The tension between advancing clean energy and industrial policy poses a challenge for governments. Balancing domestic job creation with the imperative for rapid transition to clean energy will be critical in determining the speed of the energy transition.
