The solutions for a net zero world will come from Asia, says David Smith, senior investment director, abrdn
This year, India is set to overtake China to become the most densely populated country with 1.4 billion people. Asia’s ambitious growth targets were sometimes seen as incompatible with global targets to address climate change, but it now looks as if Asia may be leading the way in creating the solutions the world needs.
In the past, Asia has been cast as a coal-powered, climate change laggard. The region’s gross carbon emissions are high and although per capita emissions are still low, there’s likely to be a risk of significant emissions growth as the region develops.
The good news is that leading Asian economies are increasingly committed to sustainable development and renewable energy, and have announced ambitious net zero goals – South Korea and Japan by 2050, 2060 for China, 2070 for India.
Although countries are still in the grip of ‘the energy trilemma’ – the tension between energy reliability, affordability, and sustainability – the growing momentum behind a global energy transition should give us hope that we can create a net zero world. This transition will be costly – requiring annual investment surging to $US 5 trillion by 2030, according to the IEA – but it’s investment that could potentially create millions of jobs and boost global GDP.Increasingly, APAC is where to find the high-tech solutions that will power the net zero world.
For investors, there is a spectrum of sustainable investment opportunities to be found, from financing renewable energy projects and innovative energy-generating companies, to backing advanced technology solutions. These solutions are becoming better, cheaper, and they’re being developed in Asia.
Asia leads the world in solar and wind energy as well production of batteries for electric vehicles (EVs). Most EVs globally are generally powered by Korean, Chinese and Japanese battery technology. The world’s largest battery company by capacity is CATL in China, followed by LG Energy Solution in Korea. CATL, is among the global leaders making and selling lithium-ion batteries and the energy storage systems needed for the energy transition. Asian companies will continue to benefit, as more countries phase out internal combustion engines and focus on electric-powered public transport.
We see a great deal of investment opportunity, particularly in China, where as well as EV battery production, companies are leading in fields including renewable energy components and energy-efficient datacentres. According to the IEA, datacentres accounted for around 300 Mt CO2-eq in 2020 (including embodied emissions), equivalent to 0.9% of energy-related GHG emissions (or 0.6% of total GHG emissions). As the stringency around the energy efficiency of datacentres increases, efficient owners and operators will gain a competitive advantage.
Nari Technology is a leading provider of power grid technology in China – the equipment and software that help distribute electricity from primary power suppliers to the electricity meters of end customers. It supplies both State Grid and South Grid, which dominate the domestic electricity distribution market. This company is well positioned for clean tech opportunities, as China seeks to transform its power distribution network to a smart grid that is more efficient, more reliable and greener. It benefits from accelerating structural investments, as the focus on renewable energy and the rollout of electric vehicles will demand a full suite upgrade of the grid to address power curtailment and safety concerns.
In India, we invest in Power Grid Corporation of India, which manages the country’s national grid network and several regional networks, transmitting half of all domestic electricity. The company stands to benefit from infrastructure spending as well as from India’s push towards renewables and associated infrastructure. Already, the majority of its capex is focused on the connection and transmission of renewable energy to urban areas.
Certainly, running an SDG-aligned fund in APAC requires a great deal of research because it can be hard to find good disclosure around company ESG credentials. But with due diligence and company engagement, quality opportunities can be found. And some companies are blazing a trail to net zero with detailed, clear and credible pathways.
By 2050, the world will be different. Global energy demand should be 8% less than today but powering an economy twice as big with two billion more people. Asia is already showing us that most of our energy can come from renewables, and many of the best future solutions may well come from this future-forward region.
