From green hydrogen to bioplastics: How investors can identify opportunities in the sustainable economy

Investing in companies and projects that are leading the way to a greener future can help the world achieve net-zero emissions while aiming for sustainable financial returns

Wind and solar energy now account for more than 10 per cent of global electricity generation, surpassing nuclear energy. More investments are likely to expand the capacity of such renewable energy, which can present opportunities to investors while mitigating climate change. PHOTO: AXA IM

Efforts to combat climate change have accelerated in the last few years, bringing along with it a myriad of new technologies and innovation aimed at helping the world reach the goal of net-zero carbon emissions. 
From electric cars to green hydrogen and bioplastics, technologies and innovation that promote environmental sustainability are popping up in nearly every sector of the economy. For investors, this means there is a growing range of opportunities in the responsible investing space. 
“There is no way to capture the entirety of this opportunity set, but we can identify and explore some key technologies in three simple categories: Established, Emerging and Fledgling,” said Mr Olivier Eugene, head of Climate Research of AXA Investment Managers.
However, not all of these technologies will succeed in the long run. Therefore, it is important that investors do their research when assessing the opportunities, says AXA Investment Managers (AXA IM).
Here, the asset manager offers its assessments on the opportunities and risks associated with new technologies or innovation that has the potential to play a crucial role in mitigating the harmful effects of climate change.  

Hydrogen’s role in the energy transition

Take for example, hydrogen. In recent years, the gas’ potential as an alternative energy source has received increasing attention amid soaring oil and natural gas prices, as well as a renewed focus on energy security in the wake of the war in Ukraine. 
Furthermore, green hydrogen, which is produced in a low-emissions way, could be key to reaching global targets of net-zero emissions.
But producing green hydrogen – through the electrolysis of water instead of using natural gas –  is costly. Reducing that cost will be vital in increasing green hydrogen’s use as an alternative energy source. 
In its Global Hydrogen Review 2022, the International Energy Agency predicted that the cost of producing green hydrogen could fall by around 70 per cent by 2030 through continued investment, technology innovation and greater economies of scale. This will make green hydrogen more cost competitive compared to fossil fuels. 
Nevertheless, it is currently tough for investors to forecast the outlook of hydrogen’s usage as an energy source given the relative novelty of the idea. It is also difficult to analyse the likely impact of hydrogen on the power sector, and to identify companies that could be winners or losers.
For investors interested in the space, AXA IM says renewables could be a potential route to tap into hydrogen’s likely growing role in the global energy transition. Companies already active in the production and logistics of hydrogen could also present opportunities, adds the asset manager.

But renewables like wind and solar power come with their own set of challenges: Both wind and sunshine are intermittent. This means that technologies to store wind and solar energy, or innovation in smart grids to address the problem of intermittent renewable energy supply could present opportunities for investors, the asset manager adds. 

Together, wind and solar now account for more than 10 per cent of global electricity generation, surpassing nuclear energy, according to the 2022 BP Statistical Review of World Energy.
More investments are likely to expand the capacity of wind and solar power generation, says AXA IM.  

Other emerging and fledgling innovations

Hydrogen is not the only emerging innovation with the potential to combat climate change. Several ideas have emerged with the potential to nudge the global economy towards a greener future, but their usage remains small and their overall impact on the environment is still being assessed.  
AXA IM has identified two of such innovations.
First, bioplastics that are plastic materials partly or wholly produced from renewable biomass sources. In the last few years, bioplastics have been touted as a more environmentally friendly alternative to conventional plastics and product packaging. 
But there remain questions about whether the production process of bioplastics contribute to pollution, as some require more extensive land and water usage; and how biodegradable bioplastics are, given that some types must be broken down through industrial composting.
Second, 3D printing is a fledgling technology that could be a promising way to reduce carbon emissions in the carbon and energy-intense construction industry. In a blog post published in May 2022, the World Bank said 3D printing reduced construction waste by almost tenfold and carbon emissions by up to 70 per cent in Malawi.

But 3D printing technology is currently comparatively expensive and remains far from replacing conventional building methods. 

Car makers double down on EVs

The technology to power vehicles electronically, for example, has advanced by leaps and bounds in the last few years. And there are signs that electric vehicles (EVs) will dominate roads in the coming years, says AXA IM. 
This is evident in the growth of Tesla1, a pioneer in the EV space; and pledges made by established, long-time carmakers such as Ford and General Motors to double down on their investments to transition away from fossil-fuel powered vehicles.
The trend will open up opportunities for investors to support automakers based on the timeline of their EV adoption, and invest in companies that manufacture parts or products linked to the transition towards EVs, says AXA IM.
However, some sustainability and social concerns have emerged around the extraction of materials needed to produce EV batteries. These are additional issues that responsible investors may want to consider, says the asset manager. 
Overall, combating climate change is a daunting global challenge. New ideas and technologies aimed at mitigating the harmful effects of climate change are scattered across every economic sector, and it takes experience and deep analysis to navigate the space. 
AXA IM has more than 20 years of experience in responsible investing. The asset manager says that identifying the right opportunity, and investing in companies and projects that are leading the way to a greener future can help the world achieve net-zero emissions while aiming for sustainable financial returns.

1Companies cited are for illustrative purposes only, and do not constitute investment advice or recommendations.

This publication is issued by AXA Investment Managers Asia (Singapore) Ltd. (Registration No. 199001714W) for general circulation and informational purposes only. It has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation or particular needs of any particular person and may be subject to change without notice. It does not constitute an offer to buy or sell any investments, products or services and should not be considered as a solicitation or as investment advice. Please consult your financial or other professional advisers if you are unsure about the information contained herein. Investment involves risks. Be aware that investments may increase or decrease in value and that past performance is no guarantee of future returns, you may not get back the amount originally invested. You should not make any investment decision based on this publication alone. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. © 2022 AXA Investment Managers. All rights reserved. 

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