07/2022

UK Net Zero Week: Five Key Takeaways on Net Zero Investment

What makes Net Zero different from Carbon Neutral?

Carbon neutral is an off-setting process, focusing more on seeking to reduce carbon emissions from a business or home. Net Zero aims to reduce emissions to the lowest possible point and only using off-setting measures as a last resort.

Strictly speaking, something or someone is carbon neutral if they can balance the carbon dioxide they release through their everyday activities with the amount they absorb or remove from the atmosphere. Net Zero emissions, however, are expanded to include other gases as well – e.g. methane. These other gases contribute to some 24% of global greenhouse gases (carbon dioxide accounting for the rest) (1).

The two main ways to achieve Net Zero are to reduce emissions and to reduce carbon dioxide from the atmosphere.

Why was Net Zero Week important?

In 2019, the UK was the first major global economy to pass laws to end the country’s contribution to climate change(2). It means the UK will aim to reduce all greenhouse gas emissions to Net Zero by the year 2050. Since the UK made its commitment, other countries have followed suit, including the European Union. Net Zero is regarded by many countries as the best strategy to be adopted by governments to protect humans and the natural world from rising global temperatures.

How can Net Zero be realistically achieved?

Net Zero will require the active cooperation of large and small companies and also of individuals. Governments will need to lead on this with new regulations – e.g. the UK’s plan to ban sales of new fossil fuel vehicles by 2030(3).

There is also an increasing focus on alternative sources of power to fossil fuels. The Russian invasion of Ukraine and the high oil and gas prices is causing many European governments to advance their plans on migrating to alternative sources of energy. For example, the European Commission in March said it was planning to seek alternative sources of Russian gas for heating and power under its REPowerEU initiative(4).

“The quicker we switch to renewables and hydrogen, combined with more energy efficiency, the quicker we will be truly independent and master our energy system,” EU Commission President Ursula von der Leyen said(5).

How does biogas fit in with Net Zero?

Biogas (anaerobic digestion or AD) is still an under-rated alternative energy source. While the technology can contribute clean gas into the grid, it also plays a role in removing harmful organic waste from the eco system. This is especially true for the food waste produced by households. Biogas plants financed by Prestige Funds are helping to remove harmful sources of methane from the UK’s agricultural economy (e.g. from landfill), while at the same time generating valuable sources of gas for the power grid.

Carbon capture and storage (CCS) and utilisation (CCU) technology can be used alongside AD to utilise carbon dioxide which would otherwise be released into the atmosphere. There is a significant opportunity for AD plants to not only reduce carbon emissions by engaging CCS technology, but to generate revenue from the captured CO2 as a by-product that can be used in the food and drink manufacturing industry or in pharmaceuticals.

What can institutional investors do?

Institutional investors are already waking up to the climate challenge. But beyond screening out the most environmentally offensive companies from equity portfolio, investing in funds and projects that can make an immediate and direct impact on the way we generate and store energy can assist economics in their journey to Net Zero.

According to the Net Zero Investment Framework, a number of metrics, actions and methodologies can be leveraged to maximise investment goals regarding Net Zero. This includes concrete targets set at the portfolio and asset level, as well as smart capital allocation. Recently, the Institutional Investors Group on Climate Change added infrastructure as the sixth asset class within the Net Zero Investment Framework. This is still in the consultation process at the time of writing, but includes useful metrics and targets for investors infrastructure projects.

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