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Adding value by tackling climate change

Lee Qian, Investment manager

Key Points

  • Our charity clients can benefit from exciting opportunities in electrification, renewables infrastructure, decarbonising hard-to-abate sectors and carbon removal
  • Decarbonising the energy system is essential to addressing climate change
  • Companies tackling climate change can potentially create enormous societal and economic value over the coming decades

Your or your clients’ capital may be at risk.

Creating economic value through tackling climate change

Decarbonising our energy system is essential to addressing climate change. The companies developing the solutions have the potential to create enormous societal and economic value over the coming decades.

This is good news for charities making both financial and social investment choices. Here are four areas where Baillie Gifford’s Lee Qian, manager of Positive Change and Keystone Positive Change Investment Trust, sees exciting opportunities emerging.

 

01. Electrification

Electrifying energy use with renewable sources is crucial. While slow progress has been made due to limitations in high-density and high-temperature applications, technological advances offer hope for accelerated electrification.

Cheaper and better batteries are enabling the electrification of transportation. Electric vehicle pioneer Tesla has steadily brought down the cost of electric vehicles through innovation and scale. While Joby Aviation is leading the development and commercialisation of electric vertical take-off and landing (eVOTL). Joby’s aircraft have a range of up to 150 miles and a top speed of 200 miles per hour.

Elsewhere, Calix is developing an electric kiln to decarbonise industries like lime and cement production, while Boston Metal's molten oxide electrolysis technology aims to electrify steel production by separating oxide from iron without carbon. Both companies are addressing electricity's limitations in high-temperature applications.

 

02. Renewable generation and the grid

Demand for renewable sources of electricity has quintupled over the past decade. Companies such as Ørsted, the world leader in offshore wind, play a key role in building the necessary infrastructure to keep up with demand.

Ørsted is also a major developer of onshore wind and solar projects and invests in newer technologies such as green hydrogen.

Energy storage is becoming critical to managing supply and demand on our networks enabling grid stability through frequency management and synthetic inertia. Tesla is a leading provider of stationary energy storage systems and software, and Northvolt is building out global battery production capacity, with an emphasis on sustainability through using renewable power and recycling.

03. Hard-to-abate sectors

Decarbonising food production is a complex challenge that requires multiple solutions. Deere’s precision agriculture offerings leverage advancements in digital technologies, such as using machine learning to identify weeds from crops, helping farmers obtain higher yields while reducing pesticide and fertiliser usage.

The construction sector is slow to decarbonise and digitalise, with many projects finishing late and 10% of materials wasted. Autodesk's software for architecture, engineering, and construction helps design energy-efficient buildings and streamline workflows to reduce rework.

04. Carbon removal

There is increasing consensus that engineered solutions will complement nature-based solutions to remove existing CO2 emissions from the atmosphere.

Climeworks, a leader in direct air capture (DAC), has an ambitious scale-up plan to capture 1 million tons of CO2 from the atmosphere by 2030, and to be on track to gigaton capacity by 2050, achieving climate impact at scale.

Summary

Climate change is an urgent challenge that needs addressing, but there are reasons for optimism. We believe that companies addressing climate change have the prospect of creating enormous societal and economic value over the coming decades.

Risk factors

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in November 2023 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

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Author

Lee Qian

Investment manager

Lee joined Baillie Gifford in 2012 and is an investment manager and decision maker in the Positive Change team. He is a CFA Charterholder and graduated BA (Hons) in Economics and Management from the University of Oxford in 2012. 

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