Our weekly summary of the key news stories, developments, and reports that are impacting investing in the wider transition to net zero carbon and a greener/fairer society.
One of the biggest challenges every week is not what to put in, its what to leave out. If we had unlimited space (& time), we would have added this one (12 insights on hydrogen) but we feel its time to take a pause from the hydrogen debate. So, this week our top story examines the possible roll out of what is claimed to be the first factory installed wireless EV charging system. We follow up on last weeks story about the lack of energy efficiency discussions at COP26, with the recently published IEA Energy Efficiency 2021 report, then we examine in our demographics segment why we shouldn’t fall for the myth of fast rising population growth & why it could be deflationary , plus in Agtech, we review biologicals, and why they will be part of the threat to business models of the agchem sector. We finish with a guest story from our human rights expert on forced migration, very topical in light of the recent White House report on the topic and its impact on geopolitical stability….. Our last thought looks at how changes at FERC should aid the roll out of long distance electricity interconnectors & renewable grid connections in the US.
The format is simple, first our summary of the key points of the story (click on the green link to read the original) and then what we think it means for investors. The focus is on news flow that we think should change the markets perception of the investment case of individual stocks and sub sectors. So not the place to come to for news that has already been well covered in say the FT. Our approach is unashamedly long term, so we ignore short term noise.
If you would like to subscribe, please contact Dan at firstname.lastname@example.org. For the next few weeks, we will focus on just four key stories, and then we will ramp up coverage. For now, the blog will be freely available but at some point we will shift to a public blog and a more detailed client ie subscription version.
This week’s top story : wireless charging for EV’s … moving from hope
Main points of the article as published
- The rumour’s about the wireless charging option in the upcoming Genesis GV60 model turned out to be true, as WiTricity confirms that its patented technology is seeing its first availability as factory-installed equipment in a fully electric vehicle. Initially, the Genesis GV60 is offered only in South Korea with a single 77.4 kWh battery option, starting at 63,793,499 KRW ($53,397) for the RWD version. The AWD version will cost 5,000,000 KRW ($4,185) more, while the Performance version is 10,500,000 KRW ($8,788) more.
- We assume that the wireless charging option will be 11 kW (in-line with the J2954 wireless charging standard) as this is the power output of the onboard charger. The customer will have to install the ground assembly pad in a garage/parking space. WiTricity hopes that wireless charging will be also used for Vehicle-to-Grid (V2G) power and dynamic charging (to power vehicles in motion) applications, as well as for autonomous vehicles.
- Genesis GV60 specs: 77.4 kWh battery with three powertrain options including RWD @ 168 kW and 350 Nm, and AWD @ 234 kW and 605 Nm & Performance AWD @320 kW (360 kW in Boost Mode) and 700 Nm. AC charging: up to 11 kW & DC fast charging: 10-80% in 18 minutes. Genesis has not obtained official EPA range ratings for the GV60 yet, but it estimates that the single-motor version should do 451 km (280 miles) on one charge, the lower-powered dual-motor version drops that to 400 km (248 miles), while the range topping variant is expected to offer just 368 km (228 miles).
Our take on this
- You might be asking why we are highlighting wireless EV charging on one premium South Korean vehicle, that will not be sold outside Korea until 2022, and where the function may not be activated on vehicles until late 2022. Because we see it as a possible game changer when it comes to solving one challenge EV’s face in wider acceptance, how to charge them in a city environment. Those who have followed our work for a while will know that we see EV acceptance by consumers as following the standard innovation adaption curve (sometimes called the Rogers curve – Rogers innovation adaption curve)
- Under this Innovators & Early Adopters get you to around 16% market share, after this you need to start persuading consumers in the mainstream, so early majority and then late majority. To get the second group to really take to EV’s, they need to be comfortable that (among other things) they can easily charge pretty much anywhere. Remember this doesn’t have to be logical, this is very much a gut feel for many consumers. One solution we have talked about before is using charge points in street lighting poles, with examples being EV Street Charge (company website here) & Ubitricity (again company web site here).
- As this recent Tech Radar article (Wireless electric vehicle charging explained) highlights “wireless infrastructure means no charging cable – potentially hazardous for other road or pavement users – and no lamp-post charging and is only activated when an EV parks over it.” Various technology companies & auto OEM’s (including BMW) are currently trialling systems, and a number are available for post purchase installation. But this is the first that we have seen that is factory installed.
- Yes, this is just the first and yes, its not cheap (with US Plugless Power says its upcoming third-generation wireless charger has a target price of $3,500, plus installation), and yes, it will not replace simple (& cheaper) slow plug in home charging and out of home fast charging, but if this can be made to work at a reasonable price we think it could materially accelerate EV acceptance in the mid 2020’s.
Energy efficiency – market could triple by 2030 to $900bn industry
Main points of the story as published
- “We consider energy efficiency to be the ‘first fuel’ as it still represents the cleanest and, in most cases, the cheapest way to meet our energy needs.” Global progress on energy efficiency has recovered this year to its pre-pandemic pace, but that was already well short of what would be needed to help put the world on track to reach net zero emissions by mid-century. Total annual investment in energy efficiency worldwide needs to triple by 2030 to be consistent with a path towards reaching net zero emissions by 2050,
- The report notes that governments have scaled up existing, employment-intensive efficiency programmes, but it also highlights that substantial potential for job creation remains untapped. For example, investments in the energy efficiency of buildings – a well-established driver of construction jobs – are expected to rise by 20% in 2021 compared with pre-pandemic levels. Even with this record level of spending, the report details how 4 million more jobs could be added by 2030 by further increasing spending on efficient buildings, appliances and other measures.
- As energy efficiency offers some of the fastest and most cost-effective actions to reduce CO2 emissions, front-loading efficiency measures into net zero strategies will be crucial for closing the gap between climate ambitions and current trends.
Our take on this
- I know we wrote about this only last week, but the latest IEA report just out is well worth a read, especially when you consider that around 80% of the additional energy efficiency gains in the scenario over the next decade result in overall net cost savings to consumers, after accounting for both the initial costs and lower operating costs. The Net Zero Emissions by 2050 Scenario involves more than 40 energy efficiency milestones that incorporate technologically mature solutions that can be put into effect today and scaled up very quickly. These cover our appliances, our buildings, transport & industry. If we had to highlight just one, it would be in buildings, which is the area that can deliver the largest share of avoided energy consumption in the period out to 2030. This includes the electrification of space and water heating …. a massively under exploited opportunity. This is a topic we want to come back to in detail, so watch this space.
Demographics – Don’t fall for the myth of fast-rising population growth
Main points of the story as published
- The population debate, exemplified by campaign group Population Matters, is focused on a rising global population …when the biggest challenge may soon become a fall in populations as fertility rates drop below the replacement ratio in more and more countries. There is a large variation in population forecasts. The UN forecasts a peak world population of 10.9bn in 2100 with most of the growth coming from just nine countries. A recent study in The Lancet, however, predicts a peak global population of only 9.7bn in 2064 before dropping to 8.8bn in 2100, almost 20% below the UN’s forecast.
- As a result, governments and corporates are “preparing for the wrong future”, one which will be defined by population ageing and population decline. The article argues that such a future will be inflationary, not deflationary, given the decline in the labour supply as the working population shrinks while aggregate demand is unlikely to fall as the population ages. Older people may buy fewer goods but they will likely buy more services such as medical care and mobility.
Our take on this
- Yes, I know that we say that we don’t normally flag FT stories, but for the second week in a row on this topic, they have spotted a valid trend. We make no apologies, however, as this is a topic every bit as important as Net Zero 2050 in shaping the economic and investment landscape through the rest of this decade. First up, the article makes some important points. Populations are not just ageing but are set to drop, starting with working age population in developed economies. Governments and corporates, as the Net Zero debate shows, are slow to react to change happening decades in the future.
- Forecasting is also difficult. While demographic forecasts out 20 years are fairly accurate (the population of 2041 has already been born), longer term forecasts are more difficult. These depend especially on assumptions about the fertility rate, the drivers of which are disputed. Some point to the cost of housing and education, others to the importance of changing lifestyle and cultural factors.
- The article is also right to highlight the macroeconomic implications of demographic change. The impact on inflation is critical given it will impact future interest rates after all and it is much debated. On this point we disagree with the article. Ageing is deflationary in our view. Yes, the supply of labour will reduce but we believe the evidence (household expenditure surveys etc) shows that aggregate demand drops more. Old people spend less in other words. Moreover, deflationary trends have not just been observed in Japan but in other countries over the last 100 years whenever the dependency ratio (ratio of non-workers to workers) rises.
Biologicals – moving into the Agtech mainstream ?
Main points of the story as published
- Biotalys, which IPO’d in July 2021, is an agtech company focused on developing protein-based biocontrols (biologicals) for use in crop protection. This week it announced the result of independent field trials conducted in the US by several universities including UC Davis. These showed a strong performance of Evoca, its first protein-based biofungicide.
- Evoca is aimed at helping fresh produce growers control fungal diseases as part of a broader integrated pest management (IPM) programme, allowing them to reduce the use of conventional, synthetic pesticides. Biotalys claims Evoca consistently performs as well as established market leaders when used as part of an IPM programme. The stated benefits include being fully-biodegradable (thus reducing harvest residues), offering a new mode of action to protect against pesticide resistance, a reduced environmental impact, while at the same time maintaining crop yields.
- Biotalys is currently seeking regulatory approval for Evoca in the EU and US, aiming for the first commercial sales in 2022.
Our take on this
- Agtech is one of our four key transition themes on the journey to Net Zero 2050. Investing in agtech offers attractive, long-term returns in a US$300bn+ market growing at 7% p.a. Biologicals are based on naturally occurring products and are one of several themes defining the current agtech revolution. Although their use dates back hundreds of years, the search for new biologicals is being transformed through the use of advanced technologies such as AI to industrialise the screening process and synthetic biology tools to enhance their performance.
- Adoption of biologicals is being driven by the pressures facing the traditional agchem industry. These include increasing consumer and regulatory pressure to reduce agchem use, the increasing cost and time to develop new synthetics, increasing pesticide resistance to existing agchems and, more recently, a growing awareness of the importance of soil health. There are billions of microbes in one teaspoon of soil, all of which are vulnerable to traditional pesticides.
- More broadly, the agchem industry is facing a growing number of threats likely to squeeze volumes and pricing, be it for pesticides or (nitrogen) fertilisers. These include regulation, litigation, political and consumer pressure and the adoption of Net Zero targets by governments and corporates, compounded by the emergence of several new technologies. As well as biologicals, new technologies include gene edited seeds and RNA-based pesticides in the biotech space, and precision ag technologies such as smart sprayers.
Social and Legal factors
- This week our good friend Kristina Touzenis, who has many years experience in the human rights field (LinkedIn profile here), has again kindly guest written the social & legal section of the weekly. Thank you Kristina. Just a reminder, this section is not written and prepared by Sustainable Investing LLP. Quite frankly, we are not experts in this field, so we leave the topic to those that are. This week she looks into the impact that climate change is having on forced migration. She also notes that migration is not always bad, people can also migrate to better opportunities. The story we link to below is a recent report from the US White House that reviewed the evidence around the impact of climate change on forced migration, and examined what it might mean for global security.
- Climate-related migration has potentially significant implications for international security, instability, conflict, and geopolitics. Extreme weather events and conflict are the top two drivers of forced displacement globally, together responsible for the annual movement of nearly 30 million people from their homes. There is a strong correlation between countries and regions most vulnerable to climate change and those that are fragile and/or experiencing conflict or violence. Climate-related impacts may further stress vulnerable communities, increasing the risk of conflict and displacement in the absence of effective prevention efforts, and vice versa. Climate-related impacts also pose an increased risk to marginalized communities displaced by conflict related to the impacts of climate change. This risk is more acute in regions with weak governance and dispute resolution infrastructure, and in growing peri-urban areas where many migrants are heading.
- Climate change driven migration will likely cause migrants to desire to emigrate to the nearest stable democracies that adhere to international asylum conventions and have strong economies. Many of these countries are U.S. allies/partners and many have experienced waves of migration. Many countries that adjoin destination countries have experienced domestic instability as migrant populations increase along destination country borders (Greece/Turkey, UK/France, Spain/Morocco, Italy/Libya, Syria/Jordan/Lebanon, and U.S./Mexico). Climate change related migration could cause greater instability among U.S. allies/partners and thereby cause a relative strengthening in adversary states. In addition, adversaries could incite or aid irregular migration to destabilize U.S. allies/partners
Kristina’s take on this
- The impacts of climate change, including rising sea levels, floods, droughts, and forest fires, are already having a devastating toll on human lives. In some areas they are rendering lands uninhabitable or unable to support the livelihoods that communities have relied upon for generations. Addressing the nexus of climate change, migration and human rights, the preamble of the Paris Climate Agreement 5 adopted in 2015 under the United Nations Framework Convention on Climate Change (UNFCCC), calls on parties to, “respect, promote and consider their respective obligations on human rights, the right to health, the rights of indigenous peoples, local communities, migrants, children, persons with disabilities and people in vulnerable situations and the right to development, as well as gender equality, empowerment of women and intergenerational equity.
- As we mentioned in the last weekly blog, flooding – as well as droughts – has a profound impact on people’s ability to make a living and to stay in areas that they have inhabited for generations. Migration, both within and across international borders, has long been part of the way of life in many affected areas. However, while migration is always multi-causal, climate change is affecting migratory movements in a number of different ways, including influencing the likelihood that people will move, the conditions in which they will do so, and the possibilities to go “back” to where they lived pre-environmental change/event.
- Studies have found, for instance, that droughts may reduce the ability of rural residents of countries in the Sahel to access migration as a coping strategy, as they may be left without the resources necessary to move. Many agriculturalists in countries like Niger and Burkina Faso who are affected by changes in rainfall, migrate to seek work or alternative sources of income during the agricultural off-season. In countries like Burkina Faso and Senegal, particularly for border communities, migration to neighbouring countries is an important climate change coping mechanism for rural residents.
- The impacts of climate change on human rights are numerous, multi-faceted, and complex. They have important and equally complex interactions with migration. In some cases, migration is an important adaptation strategy to avoid potentially harmful human rights impacts. In other cases, migration is compelled by climate change-related human rights impacts, which exacerbate situations of vulnerability. Such vulnerability to harm acts as a driver of human mobility and will also continue to affect people as they move across borders.
- Migration, particularly rural to urban migration, is often portrayed by governments and in the media as a negative phenomenon to be avoided by development policies. However, it has been reported that such policies sometimes overestimate the negative consequences of migration and undervalue its positive effects. Migration, when freely chosen and well-governed, has the potential to contribute to adaptation strategies and climate resilience in locations of origin, transit, and destination. It provides the necessary funding, skills, and knowledge, to, for example, adopt climate-smart agricultural techniques or access other livelihoods. In some cases, the choice to migrate of some family members can be critical to enabling them and other members of their households to realize their human rights.
- It is important to address the particular situations of vulnerability of those who are unable to access mobility as an adaptation strategy, which may become a reality for more people as a result of the negative effects of climate change on household resources. In order for migration to contribute to adaptation that minimizes the negative human rights effects of climate change, there is a strong need for the implementation of existing legal and institutional frameworks, particularly international human rights law.
One last thought
US senate unanimously approved Willie Phillips as an FERC commissioner, bringing a democratic majority to the all-important grid regulator in the US. The commission should now be able to begin to advance measures to facilitate regulatory reform & support the acceleration of the electrification of the grid, including interconnectors & renewables connections. Recent reports have suggested that spending on the US grid could increase nearly 3x, to $60bn pa. This spending will be essential if the objective of transitioning to more renewables in the electricity mix is to be achieved. It might sound boring, but measures such as the recent meeting of the Joint Federal-State Task Force on Electric Transmission, (joint federal-state task force agenda) could turn out to be critical in unlocking much needed grid investment. Contact Dan if you would like to read our research on this topic.