What are the investment themes emerging in the energy transition? Alasdair Green, head of energy at accountancy and business advice firm Anderson Anderson & Brown, discusses the question below.
“As we prepare for COP26 in Glasgow later this year, an awareness of how the UK can be a role model for positive change and soft global influence is being discussed more and more.
Companies across the energy industry, as well as those in all other sectors, are having their environmental impact increasingly analysed, measured and scrutinised.
This will, ultimately, affect almost every part of corporate development strategy – from recruitment to competitive tender processes, public relations and investment.
One thing that has changed significantly over the past year is a much greater emphasis and awareness from the investor community and their funders on the green agenda and low-carbon economy.
Paying heed to the environmental, social and governance (ESG) aspects of a company is becoming an increasingly established and commonplace part of investor considerations.
In the energy sector, the “E” of ESG is pre-eminent in a major investment trend towards energy transition and the low-carbon economy.
Another important emerging trend complementing environmental considerations are digital and technology-enabled, industry-focused solutions.
New technologies that create efficiencies in business operations, whether through reduced transportation of equipment and people or more accurate predictability of scheduling, can help to not only reduce the carbon footprint of a firm or an investment proposition, but potentially reduce considerable costs, too.
In clean energy and energy technology industry segments, investor appetite and sentiment is growing rapidly. A mad scramble to secure clean energy investment in the portfolios of wealth and pension funds and investment portfolios has led to reports of large surpluses of funding.
Many funds are adapting, regrouping and taking the opportunity to reinvent themselves in this area.
In the more traditional hydrocarbons segment of the energy sector, funding options are becoming more challenged, limited and harder to find, but they have not gone away.
There is plenty of evidence of investor belief and confidence in the long-term potential that remains in oil and, particularly, gas markets, and how these will help to bring about a realistic transition to net-zero.
There are often new ESG or digital efficiency factors being introduced for consideration, alongside purely financial aspects of the investment decision-making process.
This does not prevent investment in oil and gas, but adds new layers of corporate strategy and identity profiling which need to be addressed.
Some investors have tweaked the barriers to entry in order to access the right opportunities for their portfolios, while others are gravitating towards emerging markets such as carbon capture, utilisation and storage, hydrogen, wind and solar power, among others.
From net-zero to Covid-19 and COP26, drivers for change in the energy and all other sectors have never been so prominent.
For firms seeking investment, being fully alert to new challenges and opportunities must be an essential part of their strategy.”
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