The Journey to Net Zero

By
Charles Brooks,
User

Charles joined Platinum in 2014 as an investment specialist. Having previously worked in similar capacities at IFM Investors and Northward Capital / nabInvest, he brings with him a ... More

28 Oct 2021

If we want to live up to the admirable ambition from both corporations and governments of achieving the target of net zero carbon emissions, we have a long way to go, and we need to get a move on.

BP’s research shows that to replace fossil fuels and get their usage to zero between now and 2050, we have to build one nuclear power plant per day, or 1,500 2.5-megawatt wind turbines a day.1

That is every single day. And we had better hope it is windy if we opt for wind turbines!

Clearly there is a major problem here - not only with our ability to achieve this rate of production, but simply having the raw materials to do so.

This is an extreme equation, and undoubtedly, based on what we know and understand today, we will have to use some fossil fuels in the future. From a societal perspective, achieving net zero emissions is a vital ambition. While the end goal is often well articulated, what is not so clear is how we get there.

It is this challenge that we seek to consider in this article.

The path to zero may be uncomfortable

The obvious and simple answer is to stop and redirect. That is, stop doing those things that are harmful and redirect that activity or demand to something that delivers a positive contribution. This looks like a neat and simple solution, although unfortunately, it ignores the reality of today’s physical boundaries and crucially, the confronting question of maintaining our standard of living.

There is a path that needs to be followed in order to attain net zero emissions, but what is confronting is that this path may seem to take us backwards in order to achieve our goal. A simple trajectory of linear improvement ignores that we have neither the required resources or technology to achieve the goal of net zero. If we did, theoretically, we could make the switch much faster than 2050. Yes, that would be disruptive, but achievable. Absent of this technology and resources, we are left with the necessity for very significant investment to get there, teleportation to net zero carbon emissions is simply not an option.

While this is not new, it does require a radical rethink to what many well-meaning ESG funds are doing. The current ESG investor response to achieving net zero emissions is the removal of all capital from fossil fuels (to make our world instantly a better place) through exclusionary screening, making Elon Musk’s human occupation of Mars seem plausible today.

We are not saying that none of the above/below is unknown, but the rhetoric needs to go beyond the headlines, into the reality of making it happen.

What are the known highlights focused on today? These are obvious. They include: additional alternative energy sources; the reduction in the obvious sources of harm (those most frequently cleansed from portfolio); and other big picture items.  

For the transition to occur there are a range of obvious and high-profile actions, which can be implemented immediately using today’s infrastructure, technology and knowledge. All of which need funding, incentives and potentially some form of punishment for non-adherence.
 
Infrastructure investment is required across wind turbines, solar farms, geothermal power stations, grid upgrades, charging stations, storage facilities and recycling plants, just to name a few that can be reeled off with ease. We know from experience that without these developments there is no alternative generation or transmission to replace existing facilities.

This is also a technological requirement. Technologies, some of which exist today but in many instances are not yet fully formed, and others which don’t yet exist. The replacement of the internal combustion engine is a good example; not only is there no clear single accepted battery technology solution yet, it is not even clear batteries are the way to go. The chemistry composition of the end battery form will evolve and we may ultimately have a clear winner. But like the VHS victory over Betamax, this could be a short-won glory, as DVDs powered through only to be superseded by digital streaming. Cobalt/lithium and solid-state batteries face stiff competition from hydrogen. This specific debate is one for another time, however, the observation we wish to make is that there is radical technological innovation occurring now and it is one that will, and needs to, continue evolving into the future. This development requirement sits across the whole spectrum of carbon emission reduction.

But what is not generally being talked about at length?

There are two broad areas not being discussed in detail: Firstly, the path that needs to be taken (although we recognise this is starting to change); and secondly, the component parts required to enable this to happen. This is a much wider set of tools than is frequently cited. Copper is held out as one example of a darling ‘poster child’ of electrification (by this positive affirmation I refer to the existence of copper not the actual extraction and refinement – both of which are ‘abhorrent’ to the ‘green today mentality’, as is also the case for cobalt and lithium required for storage). However, little thought is given to the ‘dark child’ of steel, other than to acknowledge it is an industry with terrible ESG credentials. But for copper to deliver on its potential, it will frequently need to be encased and held up by something. That ‘something’, based on current abilities, is steel. Steel is an unavoidable requirement, making it the enfant terrible of ESG.

What are the implications?

Primarily, the cease and desist tactic is not an option. This approach would result in catastrophic outcomes for society. We would essentially see widespread deprivation of Maslow’s basic needs. Imagine the destruction of food security, energy security, shelter, mobility constraint and erosion of healthcare. In such an environment, basic human instinct, the selfish desire to survive, would lead to widespread rejection of longer-term concerns. As we have seen in riots in recent years, even in the UK, US and mainland Europe, there is only a thin veneer of civilisation. This is not a viable option. The removal of bad operators is appealing, but the reform of them is much better.

If you accept the above, it is not much of a stretch to understand where this takes us: the investment required to achieve these goals. As confronting as it seems, the investment required into these areas will appear to take us backwards! Peak emissions (and investment into carbon-emitting industries) are ahead of us, not behind us.

Below is a chart compiled by the UK Climate Change Committee showing a high-level picture of investments and savings required by 2050 in the UK alone. One can extrapolate this out for the rest of the world.

UK Balanced Pathway Investment and Savings

UK-Balanced-Pathway.png






 










Source: UK Climate Change Committee: Council investment requirements - the numbers behind the 1 February 2021 budget.


Current mine production of copper is 20 million metric tonnes (mt) p.a.2  We already use 24.4 million mt p.a., and the planned additional 650 gigawatt (GW) of new onshore and 130 GW of offshore wind power will use 5.5mt of copper alone3  – this equation does not work, and will result in a significant shortfall in copper supply.

The implication is that the transition to net zero emissions has many facets. Importantly, they are not necessarily mutually exclusive of each other. Yes, the obvious place to start is to support those businesses that are achieving good outcomes. However, to be part of a long-term constructive solution, the business has to have a real prospect of being a sustainable business model, that is both advancing the path to net zero carbon emissions while at the same time having commercial value.

Secondly, there is the imperative for technological uplift and the accompanying research and design required to develop suitable solutions across a whole range of industries. While we are immediately drawn to new, disruptive companies developing novel and exciting technology, it is also linked to the ‘bad’ making themselves better. For the foreseeable future, air travel will be a detractor to targeting net zero emissions. But improvements in the industry can be generated that contribute to the task at hand. We can also consider fertiliser companies. Clearly it is an imperative to continue to feed the world’s 7.8 billion population.4  Without fertilisers we have no hope of doing this. However, the mining of phosphates is not pretty from an environmental perspective. The alternative, however, is more devastating and likely to see a rapid erosion of society. While slightly out of scope for this article, this point reminds us that we need to consider, in a balanced manner, the overall contribution the company makes to society’s ESG objective. Our responsibility as an investment manager is to engage with companies to help them understand this link and encourage their improvement.

Lastly, there are the component parts, without which, nothing can occur. They may not at first glance be obvious, as already acknowledged we will need copper and steel, but we will also need the computer systems, semiconductors and all other manner of requirements, the breadth of which is staggering. Without these enablers we will achieve nothing.

Reflecting on the above draws one to the realisation that there is a strong industrial undertone to achieving net zero emissions. The solutions are from a much wider range of industries than the high-profile energy and transportation sectors. Ultimately, we need to seek those that have a common consideration: how are they contributing to improvement as a result of their actions?

Conclusion

In the (recreational) nautical world there are two firm camps: motor yachties and sailors. The motor advocates are about the destination and floating around in idyllic utopia. The boat is merely the method of delivery. Sailors, indeed, have the same end goal, but the path and the journey is the real joy. Transition (to net zero carbon) is the sail boat. It is about how we get there as much as the destination.



1 Source: Rodger Pielke Jr., BP 2018.
2 https://www.statista.com/topics/1409/copper/
3 https://copper.com.au/news/general/worlds-wind-turbines-drive-copper/
4 https://www.census.gov/popclock/world


DISCLAIMER: This information has been prepared by Platinum Investment Management Limited ABN 25 063 565 006 AFSL 221935, trading as Platinum Asset Management ("Platinum") the investment manager of Platinum World Portfolios plc ("PWP"). Platinum World Portfolios plc ("Company") is an investment company with variable capital incorporated with limited liability in Ireland with registered number 546481 and established as an umbrella fund with segregated liability between sub-funds pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (as amended) ("UCITS Regulations").

This information is accurate at the time of publication. This information is general information only and has not been prepared taking into account any particular investor’s investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. You should obtain professional advice prior to making any investment decision. You should also read the Prospectus before making any decision to acquire shares in PWP.
The market commentary reflects Platinum’s views and beliefs at the time of preparation, which are subject to change without notice. No representations or warranties are made by Platinum as to their accuracy or reliability. To the extent permitted by law, no liability is accepted by Platinum or any other company in the Platinum Group, including any of their directors, officers or employees, for any loss or damage arising as a result of any reliance on this information.

Investing is not without risk. Neither Platinum, any company of the Platinum Group, nor any of the respective directors and officers of the aforementioned, guarantee the performance of any investment product, strategy or fund referenced herein, the repayment of capital, or the payment of income. Past performance is not a reliable indicator of future performance. Returns could be reduced, or losses incurred due to currency fluctuations.

The information contained herein is aimed at professional clients within the meaning of Article 4.1(10) of the Markets in Financial Services Directive 2014/65/EU (MiFID II) (“Professional Client”). This information does not constitute an offer or invitation to subscribe for shares in PWP and no person resident in the United Kingdom or the European Union other than a Professional Client should act or rely on this information. Platinum UK Asset Management Limited of 20 North Audley Street, London W1K 6LX has been appointed as the UK sub-distributor of PWP and is an appointed representative of Mirabella Advisers LLP, which is authorised and regulated by the Financial Conduct Authority - number 606792. Platinum Malta Management Limited of 171, Old Bakery Street, Valletta VLT 1455, Malta has been appointed as a sub-distributor of PWP in certain European Union members states and is a tied agent of Mirabella Malta Advisers Limited, which is licensed and regulated by the Malta Financial Services Authority.


 

Terms and Conditions

Dated: 1 July 2023
IMPORTANT NOTICE - Please read this important notice before proceeding.

This website, www.platinumworldportfolios.ie, is operated by Platinum World Portfolios PLC, an investment company with variable capital incorporated with limited liability in Ireland with registered number 546481 and established as an umbrella fund with segregated liability between its sub-funds pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, as amended (the "UCITS Regulations")("the Company", "we" or "us").

By proceeding to access, view or download information from this website, you acknowledge that you have read, and agree to be bound by, the following terms and conditions. If you do not agree to these terms and conditions, you must not use this website.

  • Distribution of the information contained on this website in certain jurisdictions may be restricted by law. The information contained on this website is intended only for persons and entities in those jurisdictions where access to such information and use thereof is not contrary to local laws or regulations. Accordingly, all persons who access this website are required to inform themselves and to comply with such restrictions. In addition, this website and its contents have not been prepared for and are not intended for access by US persons as defined in the Securities Act of 1933.
  • By accessing this website, you confirm that you are a resident of:
    • (a) Finland, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain or Sweden (collectively, the "Approved EU Jurisdictions") and a Professional Client within the meaning of Article 4.1(10) of the Markets in Financial Services Directive 2014/65/EU (MiFID II);
    • (b) the United Kingdom and a Professional Client as defined by the UK Financial Conduct Authority ("FCA") and note that the information contained in this website is not to be relied upon by other persons, such as Retail Clients, as defined under the FCA's Rules (definitions can be found on the FCA website at www.fca.org.uk);
    • (c) Switzerland and a Qualified Investor within the meaning of Article 10 para. 3 and 3ter of the Swiss Collective Investment Schemes Act (CISA); or
    • (d) Singapore and (i) an Institutional Investor pursuant to Section 304 of the Securities and Futures Act of Singapore ("SFA"), (ii) a Relevant Person pursuant to Section 305(1) of the SFA, or any person pursuant to Section 305(2) and in accordance with the conditions specified in Section 305 of the SFA, or otherwise (iii) pursuant to and in accordance with the conditions of any other applicable provision of the SFA.
  • This is a marketing communication. Accessing this website does not constitute the entering into of a contractually binding document. Prior to making any investment in the Company, please refer to the Company's Prospectus and to the relevant Key Investor Information Documents and/or PRIIPs Key Information Document (as appropriate) and do not base any final investment decision on this communication alone.
  • An investment in the Company and its sub-funds involves investment risks, including possible loss of the entire amount invested. There can be no assurance that the sub-funds will achieve their investment objective. The capital return and income of a sub-fund are based on the capital appreciation and income on its investments less expenses incurred. Therefore, a sub-fund's return may be expected to fluctuate in response to changes in such capital appreciation or income. Changes in exchange rates may have an adverse effect on the value of the investment. Subject to the conditions and within the limits from time to time laid down by the Central Bank of Ireland ("CBI"), and except where otherwise stated in the investment objective and policies of a sub-fund, each sub-fund may engage in transactions in financial derivative instruments (FDI, as referred to in the UCITS Regulations), whether for efficient portfolio management purposes (i.e., hedging, reducing risks or costs, or increasing capital or income returns) or investment purposes.
  • For persons resident in the United Kingdom or an Approved EU Jurisdiction ("UK or EU Persons"): You are about to enter a website which contains information aimed at Professional Clients (as defined by the FCA and MiFID II, respectively). This website does not constitute an offer or invitation to subscribe for shares in the Company and no UK or EU Person other than a Professional Client resident in the United Kingdom or an Approved EU Jurisdiction should access, act on or rely on this website.
  • Platinum UK Asset Management Limited of 20 North Audley Street, London W1K 6LX ("PAM UK") has been appointed as the sub-distributor of the Company in the United Kingdom. PAM UK is an appointed representative of Mirabella Advisers LLP which is authorised and regulated by the FCA - number 606792. The content of this website has been approved by Mirabella Advisers LLP with respect to dissemination in the UK only.
  • In the Approved EU Jurisdictions only, the contents of this website are disseminated by Carne Global Fund Managers (Ireland) Limited (a UCITS Management Company (within the meaning of Article 4.1(28) of MiFID II), regulated by the Central Bank of Ireland - number C46640).
  • In Switzerland, the representative of the Company is ACOLIN Fund Services AG, Leutschenbachstrasse 50, 8050 Zürich, Switzerland; and the paying agent is Helvetische Bank AG, Seefeldstrasse 215, 8008 Zürich, Switzerland. The basic documents of the Company as well as the annual and, if applicable, semi-annual report may be obtained free of charge from the representative. Past performance is no indication of current or future performance. The performance data do not take account of the commissions and costs incurred on the issue and redemption of shares. Please be aware that this website may include funds or sub-funds for which neither a representative nor a paying agent in Switzerland have been appointed. The Company and its sub-funds have not been registered with the Swiss Financial Market Supervisory Authority (FINMA) as a foreign collective investment scheme pursuant to Article 120 of CISA.
  • In Singapore, it is to be noted that this website does not pertain to a collective investment scheme which is authorised under section 286 of the SFA or recognised under section 287 of the SFA. The Company and its sub-funds are not authorised or recognised by the Monetary Authority of Singapore and the shares of the Company are not permitted to be offered to the retail public. This website and the information contained on it does not constitute a prospectus as defined in the SFA. Accordingly, statutory liability under the SFA in relation to the content of this website does not apply.
  • When using this website, you are responsible for complying with all applicable local, national and international laws and regulations, including those related to data privacy and intellectual property. It may be illegal to access or download the information contained on this website in certain jurisdictions and we disclaim all responsibility if you access or download any information from this website in breach of any law or regulation of the jurisdiction in which you reside or from which you are accessing this website.
  • The investment funds, strategies and financial products and services described in this website may not be available in all jurisdictions and may not be available to some or all investors in a certain jurisdiction. Nothing contained on this website constitutes or is intended to constitute an offer or a solicitation to subscribe for, redeem or convert shares in the Company or any of its sub-funds in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Investments into any fund or sub-fund referred to on this website or any other Platinum product or strategy can only be made through and in accordance with information contained in the relevant offering and subscription documents.
  • The content on this website is provided for general information only. Nothing contained on this website is intended to constitute investment, legal, tax, accounting or other advice. We strongly suggest that investors consult financial and other professional advisers prior to taking, or refraining from, any action on the basis of the content on this website and that you carefully consider your particular investment needs, objectives and financial circumstances. This website does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making investment, financial or other decisions. The information is selective and may not be complete or accurate for your particular purposes and should not be construed as a recommendation to invest in any particular investment strategy, security, fund, sub-fund or product, whether or not offered by the Company.
  • The information provided on this website is given in good faith and is believed to be accurate at the time of compilation. The Company may, without notice, amend or remove any information on or from this website at any time. Neither the Company nor any of its directors, officers or agents (including, without limitation, the Company's investment manager, administrator or custodian) make any representation or warranty as to the accuracy, reliability, timeliness or completeness of the information. To the extent permissible by law, the Company and its directors, officer and agents (including, without limitation, the Company's investment manager, administrator or custodian) disclaim all liability (whether arising in contract, tort, negligence or otherwise) for any error, omission, loss or damage (whether direct, indirect, consequential or otherwise). To the extent permitted by law, we exclude all conditions, warranties, representations or other terms which may apply to our website or any content on it, whether express or implied.
  • Opinions expressed on this website reflects our views only at the time at which such opinions are expressed and may depend on assumptions or projections that may not prove to be correct or are subject to change.
  • This website may provide information, articles and material, or links to such, that are written or prepared by people who are not associated with the Company. This material is only provided for your interest and convenience. The Company is not responsible for the content or accuracy of this material and any opinion expressed in the material should not be taken as an endorsement, recommendation or opinion of the Company.
  • We do not guarantee that this website, or any content on it, will always be available or be uninterrupted. Access to this website is permitted on a temporary basis. We may suspend, withdraw, discontinue or change all or any part of this website without notice. We will not be liable to you if for any reason this website is unavailable at any time or for any period. You are responsible for making all arrangements necessary for you to have access to this website. You are also responsible for ensuring that all persons who access this website through your internet connection are aware of these terms of use and other applicable terms and conditions, and that they comply with them.
  • Performance figures quoted on this website are past performance. Past performance is not an indicator of future performance. Neither the Company nor any of its directors, officers or agents (including, without limitation, the Company's investment manager, administrator or custodian) or any associate guarantee or make any representation as to the performance of any of the sub-funds offered by the Company, the maintenance or repayment of capital, the price at which shares in the Company or any of its sub-funds may trade or any particular rate of return.
  • MSCI Inc. Disclaimer - All data where MSCI is referenced is the property of MSCI Inc. No use, further distribution or dissemination of this data is permitted without the express written consent of MSCI Inc. This data is provided "as is" without any warranties by MSCI Inc. MSCI Inc assumes no liability for or in connection with this data. You acknowledge that neither MSCI Inc. nor any other party involved in or related to compiling, computing or creating any of the MSCI index data referred to on this website makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI Inc., any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
  • You acknowledge and agree that the collection, disclosure or use of information about you from accessing this website is subject to the terms of the Company's Privacy Policy.
  • The Company may from time to time amend the terms and conditions of accessing this website by posting an amended version of this notice on this website. You agree to continue to be bound by any amended terms and conditions and that the Company has no obligation to notify you of such amendments other than by posting an amended version of these terms and conditions on this website.
  • The Company owns the copyright in the content contained in this website (other than materials that have been included with the permission of others who own the applicable copyright). You may print a copy of any page for personal or non-commercial purposes provided that you do not remove any copyright notices or any trademarks or logos of the Company or persons or entities associated with it. Except for a purpose or a use permitted by statute, or the prior written consent of the Company, you must not copy, modify, sell, distribute, adapt, publish, frame, reproduce or otherwise use any of the material on this website or trademarks or logos of the Company or persons or entities associated with it.
  • These terms and conditions of use are governed by and construed in accordance with the laws of Ireland and you agree to the non-exclusive jurisdiction of the Courts of Ireland.