According to a new analysis by BNY Mellon Investment Management, an additional $100trillion will be needed by 2050 to satisfy global net zero ambitions.
The world economy is currently behind schedule in achieving its net zero emissions goals by 2050 and complying with the Paris climate goal of limiting global warming to no more than 2 degrees Celsius.
The joint analysis with Fathom Consulting showed that the world will need $100trillion, or 15 percent of total projected global capital spending over the next 30 years, to catch up.
Shamik Dhar, the chief economist at BNY Mellon Investment Management, stated, “Achieving net-zero emissions by 2050 will need transformational investment, but it is achievable. If done correctly, the benefits to society and investors can be enormous. Investment is only one aspect of the situation.
There have been suggestions for a worldwide carbon price, but we believe a coordinated approach is unrealistic, so other incentives must be examined.’
Through policy levers, governments must stimulate and incentivize private sector investment while mitigating transition risks.
Europe and the United States will be responsible for around a third of the entire investment, while the S&P 500 must contribute $12trillion to green investment.
Emerging markets, which are more susceptible to the effects of climate change, will be responsible for more than half of the $100trillion, and China alone will be responsible for a quarter.
India, South Korea, and Indonesia, in addition to China, are predicted to expand faster than the world average and generate a great deal of electricity from coal. This implies that they will need a greater proportion of green investment than their current share of global GDP.
The analysis showed that with cheaper decarbonization options relative to advanced economy peers, the transition in emerging economies might result in larger financial and environmental benefits for impact-focused investors.
Surprisingly, energy and utilities account for nearly half of the needed corporate green investment expenditures, but just 6% of the total market capitalization.
However, investors are avoiding these industries due to climate-related issues, such as their relatively high carbon emissions and transition worries.
According to the analysis, the industries that may require the most investment to reach net zero emissions by 2050 are, at least in part, being ignored by some investors for the same reasons.
‘If the transition is to be accomplished, these sectors will require capital, and investors will play a crucial role in providing this capital; for maximum effectiveness in minimizing transition risk and facilitating decarbonization, investors will need to identify those companies with the most credible decarbonization and green investment plans.’
Kristina Church, global head of responsible strategy at BNY Mellon Investment Management, added, “Divestment is the absolute last choice if a company is unable to adapt.” Engagement enables the allocation of funds to the sectors and regions with the greatest need. Here lies the greatest transitional opportunity for investors.
