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THE CLIMATE CHANGE TRANSITIONS

Our responses to the risks around climate change are going to impact nearly all sectors, companies and countries

We passionately believe that as providers of capital we can make a real difference. After all, we are the owners of, and the lenders to, a whole range of public & private companies.  To translate this into real action, we need to understand how our collective response to climate change will impact sectors, companies and countries. There is not one simple transition. There are many, and each one will have different impacts, timescales, risk and opportunities.


The actions we will collectively take, over what time scale, and the barriers we need to overcome - this defines the transition pathways. Each challenge has its own pathway. In many cases we already know the technology, but even then the transitions will not be easy.

This is not just about building more renewables. Our response to climate change is going to impact our cities, our homes, agriculture, the food we eat, transport, the materials we use and their supply chains, the energy and processes used in industry, and of course our electricity grids.  And, within each major transition, we have a series of discrete sub themes.


Taking Agriculture as an example. This sector contributes around 30% of global GHG emissions and it uses 70% of our freshwater. It's important, not just for climate impact but also for its social function - feeding the world. With the wider Agricultural transition, we have important themes such as changing the type of food we eat, farming practices such as fertiliser applications and regenerative agriculture, supply chain management, water use, agtech, biotech and of course biodiversity and the role of farming & forestry in carbon capture . 

The transitions will, in most cases, completely change entire industries. And the resources they need to mobilise are massive. It has been estimated that we need to spend $120 trillion over the next three decades, just to deliver net zero carbon. Not all of this investment will be productive, some solutions will fail. Others will turn out to take longer than first thought. Our role as the providers of capital is to select the solutions that fix a real need, in a way that provides us with a fair financial return. 

To add to the challenge, our world is a complex and interconnected system, so changes in one part will have material implications elsewhere.  And we must never forget that its people that will drive the process, as voters, as consumers and as investors. So, we need to find solutions that people will buy into. Top down decisions by politicians and regulators are important, but the ultimate success of the transitions will be determined at the company and community levels. This means as well as the politics and the technology, we need to analyse the social drivers and the regulation.

The transitions will be complicated and messy. But, if we are to take meaningful long term investing decisions, we need to understand them. 

There is no simple algorithm that solves all of this. Yes, we need data, but we also need thoughtful analysis, reflecting the risks and opportunities. And it needs to have a longer term perspective, focusing not just on the next year or so, but out into the next decade and beyond. This needs judgement, independence and experience.