Being on the right side of change: Renewable energy

There’s a transformation happening in financial markets and people’s mindsets, as we transition away from fossil fuels in favour of clean renewable energy sources, writes Thomas Stokes.

Being on the right side of change: Renewable energy

Let me give you two options. The first is ExxonMobil, a well-known oil major, with roots that can be traced back to John D. Rockefeller’s Standard Oil. Its operations span every continent except Antarctica. The other is a lesser known company called NextEra, which you may or may not have heard of. They began building a renewable energy business back in the 1990s and have since become the largest producer of wind and solar energy in the US.

Now, out of these two companies, which do you think now has the highest stock market value?

If you went for NextEra, you would be correct. This year, for the first time, NextEra’s stock market value exceeded ExxonMobil.1 Yet, this isn’t just a story of two companies but symptomatic of a much larger, global trend in which interest in renewable energies has skyrocketed.

In the green bond market alone, there was an estimated $143 billion raised in 2019 for alternative energy investments, up from $30.3 billion in 2015.2 The forces behind the trend are not only fascinating to observe but also have massive long-term implications for all investors.

This time really is different

It all starts with a recognition that if human-driven climate change remains unchecked it poses an existential threat to our way of life. A world ravaged by dying oceans, wildfires, infectious diseases and unbreathable air will have profound consequences for governments, companies and, of course, each and every individual. Even the ones reading this article. Yes you.

We need to swap dirty fossil fuels in favour of clean renewables energies

A world ravaged by climate change isn’t a place anyone would want to retire into or leave for the next generation. We need to change how we produce energy by swapping dirty fossil fuels in favour of clean renewables energies.

The good news is that action is already happening and accelerating fast.  Most governments, for instance, accept more aggressive policy action is needed. In fact, the UK in 2019 became the first major economy to pass legislation targeting net-zero carbon emissions by 2050.3 To achieve this ambitious goal, the Committee on Climate Change has stated that energy from low-carbon sources, such as wind and solar power, must quadruple by 2050. This will mean a lot of investment capital being directed into assets that are involved in renewable energy.

This change isn’t just limited to the UK. Even China, the world’s biggest coal producer, made a pledge this year to achieve net zero carbon emissions by 2060.4 Nor is it just governments. Companies are also changing their business activities to reflect climate change; in no small part due to pressure from their investors such as ourselves. In February, BP, a large emitter of greenhouse gases, pledged to be net carbon-zero company by 2050, which will require it to increase its focus on renewable energy.

And it’s not just energy companies that are taking on the challenge.  Another example is Microsoft. It has gone one step further by aiming to be carbon negative by 2030, which means having the net effect of removing carbon dioxide from the atmosphere. Microsoft’s data centres, which require huge amounts of electricity, are now primarily powered by renewable energy.

Every investor penny counts

Finally, individuals have a big part to play in shaping the future through what they decide to do with their pensions and investments. There are promising signs that an increasing amount of people are taking a more active interest in where their money is being invested. For example, a recent Aviva survey showed 92 per cent of advisers believe environmental, social and governance factors will make up a larger proportion of their business in the next couple of years, primarily due to increased demand from their clients. What we can glean from this is that people care about being good citizens and looking after the environment: increasing our reliance on renewable energy sources is a key part of that.

We believe that over the next few years renewable energy will grow exponentially

Renewable energy5 made up almost half of Britain’s electricity generation in the first half of the year.6 This is unquestionably positive news, but it still means a large proportion of the remainder (37.4 per cent) is still sourced from fossil fuels that are damaging the planet. Nevertheless, we believe that over the next few years growth in renewable energy, both in the UK and globally, will grow exponentially; indeed, our survival as a species counts on it. This monumental change will be driven by governments, companies and individuals all around the world.

We want to encourage and help our clients be on the right side of this change. We can do this by using our influence as a large asset manager to push companies to align their businesses to a lower carbon world, while also investing into exciting pioneering companies that are providing solutions to our renewable energy needs.

Key risks

The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency and exchange rates. Investors may not get back the original amount invested.

Investments can be made in emerging markets. These markets may be volatile and carry higher risk than developed markets.

Investments can be made in derivatives, which can be complex and highly volatile. Derivatives may not perform as expected, meaning significant losses may be incurred.

Important information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited ("Aviva Investors"). Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature.

The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested.

The Aviva Investors Multi-asset Fund range comprises the Aviva Investors Multi-asset Fund I (“MAF I”), the Aviva Investors Multi-asset Fund II (“MAF II”), the Aviva Investors Multi-asset Fund III (“MAF III”), the Aviva Investors Multi-asset Fund IV (“MAF IV”) and the Aviva Investors Multi-asset Fund V (“MAF V”) (together the “Funds”).

The Funds are sub-funds of the Aviva Investors Portfolio Funds ICVC. For further information please read the latest Key Investor Information Document and Supplementary Information Document. The Prospectus and the annual and interim reports are also available on request. Copies in English can be obtained free of charge from Aviva Investors UK Fund Services Limited, St Helen’s, 1 Undershaft, London EC3P 3DQ. You can also download copies from our website.

Issued by Aviva Investors UK Fund Services Limited. Registered in England No 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: St.Helen's, 1 Undershaft, London, EC3P 3DQ. An Aviva company.

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