The case for climate solutions
Discussing investing directly in climate solutions, Randeep Somel identifies numerous sectors as significantly contributing to the climate crisis. These include utilities and energy, agriculture and forestry, transportation, and building and he claims that if any of these areas are untouched from now until 2050, net zero will not be reached. Randeep explains that as a result, The M&G Climate Solutions Fund incorporates all of these sectors.
With regard to investing in climate solutions, M&G focuses on 3 areas:
1. Clean energy
2. Green technology
3. A circular economy
For this last initiative, M&G looks for companies that promote a circular economy, as opposed to the standard, linear model, which sees a commodity be manufactured, used, and then discarded as waste. A circular economy, by contrast, involves using as much recycled material as possible and is a solution that enables consumers to address the climate threat themselves, every day. In addition, using recycled materials, and recycling products at the end of life, can reduce emissions by 20% and is also more cost-efficient than the prevailing throwaway culture.
Randeep points out that 35% of greenhouse gas producing activities, such as the manufacture of steel and cement and aviation, cannot be economically electrified. Because of this, Randeep concludes: “we need a substitute for oil and gas that has the fungibility of those materials, has the transportability, but isn’t as costly or as heavy as batteries and green hydrogen looks to be where both policymakers and industry is settling”. The difference between green hydrogen and normal hydrogen is simply the source of generation. Wind power and solar, for example, can create hydrogen from renewable sources – making it green – and what’s more, Randeep claims that the cost of these technologies is already coming down.
The power of engagement
For the final section, Rupert Krefting explains engagement at M&G. One of the ways in which M&G targets their engagement is by creating a list of the greatest carbon emitters across equities and fixed income. The first step is to establish if these companies exhibit net zero ambition and if not, to pressure the companies to follow suit and join the path to carbon neutrality.
Rupert explains that once a company has adopted net zero ambition, M&G then examines if they have established short, medium, and long-term emission reduction targets. M&G ensures that all targets are backed by science and that the companies also exhibit good disclosure of how they are aligning their capital, what their decarbonisation strategies are, and of the details of their governance – for example, is the transition to net zero just?
The next step in engagement with companies is at a portfolio level. M&G reviews each portfolio every quarter and identifies the companies that have the largest emissions and are thus, require engagement.
Summarising M&G’s process of engagement, Rupert says: “We’re trying to identify companies that are large emitters that don’t have good targets and good emissions on net zero and those are the targets for our engagements. So in this way, we’re trying to work out which companies at an overall business level and also at the individual portfolio level that aren’t Paris aligned that haven’t got robust, science-based targets and concentrate on engaging with those companies.”
Ultimately, M&G’s roundtable event presented valuable insight and laid out the very important steps that they have been taking as an investor and as a company to try and help achieve net zero emissions by 2050. Their commitment to net zero sets a precedent for the investment industry and involves direct engagement with large emitters who are not showing Paris alignment. The efforts of M&G are promising as well as encouraging, having instilled net zero ambition in 11 of the largest emitters in the last year alone, and giving us some much-needed hope for the future of our planet.
