How institutional investors can navigate the far-reaching impact of the rapidly changing climate.
Two degrees doesn’t sound like much,
It’s not too late to prevent climate change from doing more environmental, physical and economic damage, but transforming the global economy at an unprecedented speed and scale is necessary to meet the 2°C goal. A 2°C rise could have a massive impact on the global environment and economy, as well as individual countries and industries that support them.
Impact to the Environments
By 2050, without serious steps toward mitigation, temperatures will rise by 2°C and physical damage could raise the cost of climate change to 3% of global GDP, up from an estimated 1% now, according to the Economic Intelligence Unit, the research and analysis division of the Economic Group.
Billion-Dollar Storms continue to grow
As temperatures rise, so do the number of weather disasters. Since January 1993, 212 weather disasters have cost the U.S. at least $1 billion each, according to the National Oceanic and Atmospheric Administration (NOAA).
By 2050, without serious steps toward mitigation, temperatures will rise by 2°C and physical damage could raise the cost of climate change to 3% of global GDP, up from an estimated 1% now, according to the Economist Intelligence Unit, the research and analysis division of the Economist Group.
Impact to the Environment
Heating Up
Nineteen of the 20 warmest years have occurred since 2001, with the exception of 1998, according to the Climatic Research Unit and the National Oceanic and Atmospheric Administration.
Weather Costs Add Up
2019 was the second-wettest on record for the contiguous U.S., with 34.78 inches of precipitation, almost matching 1973’s all-time high, according to NOAA. The cost? $20.3 billion.
Crop Loss
Without adapting to the changing climate, some Midwestern and Southern U.S. counties could see a decline in yields of more than 10% over the next five to 25 years, with a 1-in-20 chance of crop losses of more than 20%, according to NOAA.
2°
An analysis by global forecasting firm Oxford Economics of the relationship between heat and economic performance in the absence of efforts to curb greenhouse gas emissions shows that the Earth could warm by 2°C by 2050, cutting global GDP by 2.5% – 7.5%, with the worst-affected countries in Africa and Asia.
Source: Oxford Economics
7.5
%
Forecasted 2050 Increase of earth’s temperature
Potential loss to Global GDP
Hurricane Dorian (2019)
The Bahamas suffered a loss of $3.4 billion from Hurricane Dorian, close to a quarter of its GDP, according to government projections.
Australia wildfires (2019)
Australia’s economy is likely to be further impacted by wildfires. Economists see a hit to GDP of between 0.2-0.4 percentage points, according to Bloomberg Green.
0.2-0.4% GDP Loss
25% GDP Loss
Supply interruptions
According to McKinsey & Co., by 2040, a company using leading-edge chips such as an automotive OEM, sourcing from Korea, Japan, Taiwan or other hubs in the Western Pacific, can expect that hurricanes sufficient to disrupt their suppliers will become two to four times more likely.
2018 Emissions per Country
Source: Union of Concerned Scientists
Fuel combustion only. GT = Metric gigatons
#1 China
China is by far the largest contributor of CO2, creating almost double the amount of the USA.
United Kingdom
0.37 GT
Australia
0.42 GT
Indonesia
0.61 GT
Saudi Arabia
0.62 GT
Germany
0.75 GT
Japan
1.16 GT
Russia
1.71 GT
India
2.65 GT
USA
5.41 GT
China
10.06 GT
United Kingdom
5.62 T
Australia
16.92 T
Kazakhstan
17.60 T
Saudi Arabia
18.48 T
Germany
9.12T
Japan
9.13 T
Russia
11.74 T
India
1.96 T
USA
16.56 T
China
7.5 T
#3 Australia
Even though Australia is far behind China and USA in emissions per country, per capita, it ranks higher than both.
Source: Union of Concerned Scientists
Fuel combustion only. T = Metric tons
2018 Emissions per Capita
United Kingdom
1.3%
Australia
3.3%
Saudi Arabia
9.7%
Germany
1.9%
Japan
2.4%
Russia
8.5%
India
12%
USA
1.9%
China
7.4%
India’s Cost
India’s GDP will be hit the hardest while transforming to a low-carbon economy, with close to a 12% loss.
Source: Bloomberg Intelligence, Global Insight: The Cost of Doing What’s Needed on Carbon
to transfer to a low-carbon economy by 2050
Estimated % GDP Costs
Indonesia
10.4%
Avoiding a 2°C rise, and the worst consequences of global warming, would mean reaching net zero CO2 emissions by 2050–70, a shift that requires sweeping changes to the way economies operate. Countries and industries are responding in various ways to reduce emissions — with varying success. Of the world’s top environmental performers, 20 out of 25 are in Europe, with Australia, New Zealand, Japan, the United States and Canada comprising the rest, according to the Environmental Performance Index (EPI) 2020, which is compiled by researchers at Yale and Columbia universities every two years. Out of 180 economies surveyed as part of the index, these countries have been most successful in addressing the vast range of environmental challenges they face.
IMPACT TO COUNTRIES AND INDUSTRIES
2050 Net Zero
$2 Trillion
Pledge
Investment
The United States will invest $2 trillion in a sweeping climate-and-job agenda.
The European Union and the United Kingdom have both pledged to go net zero by 2050.
2050 Net Zero
$500 Billion
European Union
Investment
2050 Net Zero
$15.9 Billion
Investment
United Kingdom
China has pledged to become net zero 10 years later than the Paris agreement, but has the highest investment. Japan has set an ambitious pledge for becoming carbon neutral by 2050, and Australia has not yet made a pledge to become net zero.
2060 Net Zero
China
$15 Trillion investment
2050 Net Zero
Japan
Japan set an ambitious pledge for becoming carbon neutral by 2050 without laying out a clear plan for reaching its target.
No Pledge Yet
Australia
Coal and gas exports together reap a quarter of Australia’s export income, totaling about $88 billion a year, according to a University of New South Wales report published in July.
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2 million
8 Million
22 Million
45 Million
2020
2025
2030
2035
2040
The commercial battery-powered electric fleet is projected to grow to 45 million.
Source: BloombergNEF
As EVs and driverless technology become more proficient, the U.S. commercial electric fleet will continue to grow.
Transportation
Source: BloombergNEF
Walmart Inc. is teaming up with Cruise LLC, the self-driving car unit majority-owned by General Motors Co., to experiment with delivering customer orders using driverless vehicles.
Demand for electric trucks has increased rapidly in the last year with FedEx, Amazon and UPS among those ordering vehicles from relatively new automakers like Chanje, Arrival and Rivian.
Source: BloombergNEF
U.S. cities are defining policies and initiatives to become carbon neutral.
Real Estate
of global energy-related greenhouse gas emissions are accounted for by buildings.
40
%
Source: U.S. Energy Information Administration
San Francisco will ban the use of natural gas in new buildings. In New York, around 50,000 buildings will be required to collectively cut their carbon emissions by 40 percent.
Phillips 66 and HollyFrontier both recently announced plans to convert refineries to renewable diesel.
6x
Source: BloombergNEF
U.S. renewable diesel production capacity is set to grow at least six-fold over five years making the U.S. the largest producer by 2024.
2017
2019
2015
2013
2011
wind
Solar
Other
$63.2 Billion
In 2019, wind and solar accounted for 99% of U.S. renewable energy capacity investment.
Source: BloombergNEF
New investment by sector
($ in U.S. Billions)
Other: Combo of biofuels, geothermal, marine, small hydro, biomass & waste, corporate finance and energy smart technologies.
U.S.-based renewable energy giant Next Era is the world’s biggest investor-owned producer of solar and wind energy and has enough renewable capacity to power Belgium.
In renewable energy, the U.S. continues to focus on wind and solar, but also has eyes on other investments like renewable diesel.
Energy
BP has unveiled the most aggressive plans yet by a major oil company to pivot toward cleaner energy, calling for a 40% reduction in oil-and-gas production over the coming decade, greater investments in low-carbon energy and a ramp-up of wind and solar power.
Combined with customers from other energy providers that use Octopus Energy’s software platform, called Kraken, Chief Executive Greg Jackson wants to capture about 50% of the country’s home energy market.
Source: BP
Source: BloombergNEF
Source: Octopus Energy
Renewable energy from wind, solar and hydro peaked at 73% of the U.K.’s generation mix, according to Enappsys Ltd.
While both the EU and the U.K. are investing heavily in wind and solar, the European Union is also developing a strategy for green hydrogen.
Energy
EV Charging Connector Growth
Europe’s listed electrolyzer companies have more than tripled in value in 2020
Source: BloombergNEF
Market capitalization of ITM Power Plc, Nel ASA and McPhy Energy SA.
0
Oct
Jul
Apr
Jan
Oct
1
3
4
2
1.3 Billion
€
4.3 Billion
€
2020
2019
The U.K. government says it plans to invest 1.3 billion pounds in speeding up the roll-out of charging points for electric vehicles in England, with 582 million pounds in grants to encourage consumers to buy zero- or ultra-low-emission vehicles. Charging stations will serve to balance the grid with EV batteries and energy flows will increase and decrease during the day.
Fiat Chrysler Automobiles and Engie EPS announced plans to form a joint venture to provide e-mobility solutions, including charging infrastructure, in Europe.
Volkswagen AG says it will launch a pilot project for climate-neutral mobility on the Greek island of Astypalea. VW will invest $38.6 billion over five years to develop the industry’s biggest lineup of purely battery-powered cars, which will be flanked by numerous hybrid vehicles.
15 Million
5 Million
1 Million
2020
2025
2030
In Europe, automakers are generally more ambitious than those in other countries, with Daimler, VW and Volvo all aiming for carbon neutrality between 2039 and 2050.
Transportation
%
50
%
60
The U.K. government’s “construction 2025 strategy” aims to reduce emissions by 50% from the built environment by 2025.
Real Estate
The EU and U.K. are also looking to reduce emissions in building and construction, driving new policy and carbon capture and storage solutions.
The Norwegian government will back two-thirds of the bill for numerous carbon capture and storage (CCS) projects under its Langskip program. Norcem, subsidiary of HeidelbergCement, will be the first to receive funds under Langskip to build a CCS facility. The aim is to capture around 50% of the emissions, or 400,000 metric tons of CO2.
of emissions in cement production processes cannot be abated using clean-energy sources.
1.3
£
B
79
Semiconductor Energy Laboratory Co. LTD
56
Integrated Power Solutions Inc.
53
Sakti3 Inc.
29
Hyundai Motor Co.
233
Toyota Motor Corp.
Toyota Motor Corp. is investing 1.5 trillion yen ($13.9 billion) in its battery business and plans to commercialize its solid-state technology by the early 2020s, according to its annual report released in October.
Toyota Motor Corp. holds 233 solid-state-focused patents or applications concerning the technology—almost triple the number of its closest competitor.
China is leading the renewable energy manufacturing market, while Australia will be #1 in rooftop solar installations per capita.
Energy
Solar cell production by manufacturer headquarters, 2019
China is the biggest and cheapest manufacturer of hydrogen electrolyzers.
In 2018, 59% of all hydrogen electrolyzers manufactured in the world were created by China. The projected global hydrogen energy business by 2050 is $700 billion.
Source: BloombergNEF and Bloomberg article, ‘Hydrogen Wars’ Pit Europe v. China for $700 Billion Business
Source: BloombergNEF
China
China
%
78
%
59
Customers around the world will host 2.2 terawatts* of solar by 2050, accounting for 13% of global power capacity.
2050 customer-sited solar capacity (kW) per capita. Source: BloombergNEF
Germany
Italy
U.K.
U.S.
China
India
Australia
Iberia
1.0
1.5
2.0
0.5
0 kilowatts
By 2050, Australia will have 2 kilowatts (kW) rooftop solar capacity per capita. India and China will have just 0.1 and 0.2kW.
Transportation
China demand for electric vehicles has driven multiple areas of the EV industry.
China’s electric-car market projections in proportion to all China auto sales
%
60
2020
2025
2030
2035
20%
10%
40%
Source: Bloomberg article, China Mulls Goal of 60% of Auto Sales to Be Electric by 2035
China will dominate second-life capacity from retired car and bus batteries.
2025
2023
2021
12.1 GW
4.6 GW
China
Rest of World
The number of battery packs at the end of their useful life is set to surge.
Source: Circular Energy Storage
but an increase in the Earth’s temperature by 2°C could dramatically change our planet’s future.
The 2015 Paris climate agreement seeks to hold the rise in average global temperature below 2°C above pre-industrial levels.
But the Earth’s average temperature increase has already jumped to just over 1°C above pre-industrial levels, which means we’re less than 1°C shy of breaching the 2°C target.
Global temperature vs. 20th century average
Source: NOAA
The five hottest years have all occurred since 2015
2014
0.93°
2015
1.15°
0.83°
1.0°
2016
1.31°
0.79°
0.93°
2017
1.09°
0.81°
0.83°
2018
0.92°
0.75°
0.95°
2019
1.1°
0.87°
A 2°C rise will impact the environment and the economy
It’s not too late to prevent climate change from doing more environmental, physical and economic damage, but transforming the global economy at an unprecedented speed and scale is necessary to meet the 2°C goal. A 2°C rise could have a massive impact on the global environment and economy, as well as individual countries and industries.
=
Climate change has worsened global economic inequality: The gap between the economic output of the world’s richest and poorest countries is 25% larger today than it would have been without global warming, according to a 2019 Stanford University study.
Impact to Economies
Opportunities and risks in an altered investment landscape
WEATHERING CLIMATE CHANGE
Climate change is transforming the global economy, reshaping markets and altering the investment landscape. In our latest Megatrends paper, Weathering Climate Change, we propose an actionable climate change agenda for institutional investors, encompassing both hidden portfolio vulnerabilities and potential opportunities in the transition to a lower-carbon world.
For Professional Investors only. All investments involve risk, including the possible loss of capital.
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Cost of United States Billion-Dollar Disasters
Since 1980, the U.S. has sustained 279 weather and climate disasters in which the overall damages/costs reached or exceeded $1 billion (including CPI adjustment to 2020). The total cost of these 279 events exceeds $1.825 trillion. The total cost over the last 5 years (2016–2020) exceeds $550 billion — averaging more than $110.0 billion/year — a new record.
1980s
1980-1989
Tropical Cyclones
$810 Billion
U.S. climate disasters total cost from 2010-2019
All Billion-Dollar Disasters
$443 Billion
Tropical cyclones total cost from 2010-2019
1990s
1990-1999
2000s
2000-2009
2010s
2010-2019
Cost to 2050 GDP of 2°C rise in temperature
Bloomberg Economics forecasts drawing on climate-impact models suggest the cost of global GDP will rise by another 2% through 2050 if emissions are left unchecked. By 2100, the total hit to global output will be about 10%.
Total Global Power capacity almost triples by 2050
Worldwide power capacity almost triples between 2019 and 2050. Renewables surge in 2050, as wind and PV expand rapidly while fossil-fuel power capacity drops to 24%.
Source: BloombergNEF
7,367 GW
2019 Total Global Power Capacity
45
%
Zero Carbon
55
%
Fossil Fuels
20,391 GW
%
76
Zero Carbon
24
%
Fossil Fuels
2045
2035
2030
2025
2020
2050
£60
£30 Billion
0
- £30
- £60
Balancing Out
The cost of Britain’s efforts to reduce its greenhouse gases over the next three decades is lower than previously thought and could even be neutral, according to the government’s independent climate change advisers. The panel found that the savings to Britain from ending the use of fossil fuels in transport and using more efficient energy technologies would cancel out the increased investments needed.
Source: U.K. Climate Change Committee
The Growth of EV
Drivers bought 2.1 million EVs in 2019, almost half of them in China. That number is projected to rise to 46 million by 2039, the first year when battery-powered cars are expected to outsell internal combustion engine vehicles.
2020
2025
2030
2035
2040
Battery electric vehicles
Plug-in hybrid electric vehicles
58 Million Total Sales
47.8 Million
7.0 Million
3.4 Million
60 Million
30 Million
Fuel cell vehicles
Learn more
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2050
2019
2025
in energy, transport, manufacturing and other areas
Investment needed
from efficient technologies
Operational savings
58 Million
*A terawatt = 1 billion kilowatts
*A terawatt = 1 billion kilowatts
But the Earth’s average temperature increase has already jumped to just over 1°C above pre-industrial levels, which means we’re less than 1°C shy of breaching the 2°C target.
The 2015 Paris climate agreement seeks to hold the rise in average global temperature below 2°C above pre-industrial levels.
Global temperature vs. 20th century average
Source: NOAA
The five hottest years have all occurred since 2015
But the Earth’s average temperature increase has already jumped to just over 1°C above pre-industrial levels, which means we’re less than 1°C shy of breaching the 2°C target.
The 2015 Paris climate agreement seeks to hold the rise in average global temperature below 2°C above pre-industrial levels.
But the Earth’s average temperature increase has already jumped to just over 1°C above pre-industrial levels, which means we’re less than 1°C shy of breaching the 2°C target.
present
2050 Total Global Power Capacity
Real Estate
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