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Current Investments in Clean Energy Insufficient – IEA

Economist warns of “unsustainable recovery” as CA100+ launches sector-specific transition guidance for electricity utilities.

Investors need to urgently funnel more capital into renewable energy to limit global warming to a 1.5°C scenario, according to Tim Gould, Chief Energy Economist at the International Energy Agency (IEA).

“We are currently in an unsustainable recovery following the impact of Covid-induced recession, with prices spiking for gas and oil. Unfortunately, we are still a long way from alignment with a 1.5°C scenario. Investors need to be investing in clean energy,” he warned, speaking at the ‘Investor Action on Climate’ series, hosted yesterday by the London Stock Exchange Group (LSEG) and UN-convened Principles for Responsible Investment (PRI).

In 2020, there were increases in the utilisation of renewable energy sources, such as wind and solar PV. However, as lockdowns continue easing around the world, 2021 has seen a “large rebound in coal and oil use”, according to the IEA’s recent 2021 World Energy Outlook (WEO) report. This has led to the “second-largest annual increase in CO2 emissions in history”, the report added.

Yet current public spending on sustainable energy in economic recovery packages has only mobilised around one third of the total investment needed to shift the energy system “onto a new set of [sustainable] rails”, the WEO noted.

The IEA further analysed the existing net-zero pledges made by countries ahead of COP26 next month, noting that, should these targets be achieved when promised, the global average temperature will have increased to 2.1°C by 2100. Gould argued this was “an unsatisfactory outcome”, adding that these pledges will need to be underpinned by “significant additional growth in renewables” if there is to be any chance of reaching the 1.5°C target.

“Everyone needs to step up to bridge the funding gap. This means doubling down on clean electrification and backing sustainable technological solutions. We have the tools we need to bring emissions down over the next ten years, but we will need new tools to ensure that emissions keep falling after 2030,” Gould said.

Also speaking at the event, US Special Presidential Envoy for Climate John Kerry said policymakers must “play their part” in ensuring “increased investment in future technological solutions” including carbon capture, hydrogen and battery storage.

The UK published its Net Zero Strategy this week, which includes £500 million towards innovation projects to develop green technologies, £140 million to accelerate the development of industrial hydrogen and £620 million in grants for electric vehicles and street charging points.

The country’s complementary sustainable investing roadmap outlined the formation of the Energy Working Group (EWG), which will advise the government on technical screening criteria for energy-related activities that will be listed in the UK’s forthcoming Green Taxonomy.

Mapping out path for change

As part of Climate Action 100+’s (CA100+) Global Sector Strategies workstream, the Institutional Investors Group on Climate Change (IIGCC) has published sector-specific guidance for electricity utilities transitioning to net zero. Focusing on the most carbon-intensive industries, guidance has also been published for steel and aviation.

“CA100+ realised that progress does not look the same across sectors, and that needs to be reflected in how investors measure progress,” said Anne Simpson, Managing Investment Director of Board Governance and Sustainability for the California Public Employees’ Retirement System (CalPERS), speaking at the PRI and LSEG event. She is also a member of the Steering Committee and Asia Advisory Group for CA100+.

The report has set out actions utilities need to take in order to decarbonise in line with the IEA’s 2050 roadmap.

“The pathway the IEA has laid out to net zero for the energy sector is very narrow and very challenging but, in our view, it is still achievable,” said IEA’s Gould.

A key requirement is for utilities to ensure they have a credible plan in place to reach net zero by 2040 globally and by 2035 in advanced economies. They must also: halve emissions by 2030; set two additional company-wide interim emissions targets in line with the Science-Based Target initiative (SBTi); and disclose all Scope 1-3 emissions where possible.

The new guidance will inform the engagement strategies of all investors engaging with power companies on the CA100+ focus list.

To date, 111 companies with which CA100+ investor members have engaged across the most carbon-intensive sectors have pledged to reach net-zero by 2050 at the latest, Simpson said.

“If these companies can make good on their commitments, it is going to represent around 25% of global emissions. By taking a very focused approach on a select group of companies, we can have a huge impact,” she noted.

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