Transition to net zero by 2050 will cost investors $100trillion

A further $100trillion will be needed to meet global net zero goals by 2050, according to a new report by BNY Mellon Investment Management. 

The global economy is currently behind schedule in reaching its 2050 net zero goals and complying with the Paris climate goal of limiting global warming by at least 2 degrees.

The joint report with Fathom Consulting found that $100trillion, which is 15 per cent of total forecast global capital expenditure over the next 30 years, will need be needed for the world to catch up.

Despite the recent interest in ESG investing, the global economy is behind schedule in reaching its net zero goals

Shamik Dhar, chief economist at BNY Mellon Investment Management, said: ‘Achieving net zero by 2050 will require transformational investment, but it is attainable. Get it right and the payoff to society and investors can be substantial. Investment is just one side of the coin. 

‘Wider policy action is needed to accelerate the pace of decarbonisation and there have been calls for a global carbon tax, but we think a coordinated approach is unlikely, so other incentives must be considered. 

‘Governments need to encourage and incentivise private sector investment whilst alleviating transition risks through policy levers.’ 

Around a third of the total investment will need to come from Europe and the US, with companies in the S&P 500 needing to commit $12trillion to green investment.

Emerging markets, which are more vulnerable to the impact of climate, will need to stump up more than half of the $100trillion and the report found a quarter will be needed in China alone.

India, South Korea and Indonesia are, alongside China, expected to grow faster than the global average and currently use a lot of coal for electricity generation. This means they will require a larger share of green investment than their current share of global GDP.

‘With cheaper decarbonisation solutions relative to advanced economy peers, the transition in emerging markets can potentially lead to greater returns, both financially and environmentally, for impact-focused investors,’ the report found.

Unsurprisingly, energy and utilities account for nearly half of the overall corporate green investment spending required, but account for just 6 per cent of the overall market capitalisation.

However these sectors are being shunned by investors over climate-related concerns, including their relatively high share of carbon emissions and concerns over the transition.

The report said: ‘Herein lies the problem: the sectors that may need most of the investment to achieve net zero by 2050, are, it seems, at least in part, being shunned by some investors for the very same reasons.

‘If the transition is to be achieved, these sectors will need capital and investors will play an important role in providing this capital; for maximum effectiveness in minimising transition risk and facilitating decarbonisation investors will need to identify those companies with the most credible decarbonisation and green investment plans.’

Kristina Church, Global Head of Responsible Strategy at BNY Mellon Investment Management added: ‘Divestment is a very last resort should a company fail to transition. Engagement allows for the directing of capital to the sectors and geographies that need it most. This is where the biggest transition opportunities for investors lie.’ 

This post first appeared on Dailymail.co.uk