This year, we saw clear warnings about the devastating effects of climate change. Felix Odey van Schroders looks at what it means for investment in the food, water and energy value chains, and his colleague Alexander Monk argues that the current energy crisis can give a huge boost to the growth of sustainable energy.
Time is running out
The pressure on the global food and water system is increasing as a result of climate change. Time is running out to counter the rise in global temperature. A report by the IPCC clearly shows that the irreversible consequences of climate change are already visible. The consequences are likely to be catastrophic if drastic measures are not taken immediately in all sectors and countries.
The world is therefore facing major changes. Emissions of carbon dioxide and methane must be stopped quickly. More investment is needed to prevent sea level rise, extreme weather events and threats to the world’s food supply. More than 40% of the world’s population is very vulnerable to climate change, according to the IPCC. The world population is expected to grow to more than 10 billion people by 2050, requiring 70% more food and water than in 2010.
Natural and technological solutions
Food production is responsible for 25% of greenhouse gas emissions, 65% of freshwater consumption and 40% of land use, where food production often takes place near or even exploits important stabilizing ecosystems, such as the sea or rainforests. Environmental damage must be kept to a minimum, but the recycling of these natural resources must also be promoted. Odey emphasizes the importance of nature-based solutions and technologies to produce food and energy.
What role do investors play?
Changes in energy, food and water value chains will trigger massive redistribution of capital. Traditionally, these types of capital shifts have served as a catalyst for stock prices for those companies that have successfully achieved returns from higher capital expenditures.
The necessary changes in systems such as energy, food and water are still in their infancy. Overall, investment in the agricultural and agricultural sectors must be three to six times what it is today to effectively combat climate change.
Investors, companies, governments and organizations such as the IPCC must ensure that data, capital and rules are aligned to effectively drive the necessary changes before they become even more cumbersome and difficult to implement.
Energy crisis accelerates greening
The current energy crisis is a catalyst for renewable energy. The cost of electricity produced from renewable energy sources such as wind and solar has dropped dramatically in recent years. They have long been comparable to – or even cheaper than – electricity produced from fossil fuels. This means that renewable energy, including renewable fuels, becomes more attractive.
The cost argument was already largely in favor of wind and solar, even before the recent cost increases on fossil fuels. But as gas prices rise, the cost of other new renewable technologies begins to become more competitive. Alexander Monk, Global Resource Equities fund manager, points to ammonia, which can be produced in a sustainable and CO2-free way. One way to make green ammonia is to use hydrogen from water electrolysis using renewable energy.
Green ammonia has different uses. For example, for storage and transport of energy from renewable energy plants. Or as fuel to make the shipment CO2-free. In terms of cost, renewable fuels like green ammonia or green hydrogen are currently interesting.