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MarketScape · 08.29.22

ESG Investing: Green Transition Still a Go

Today’s political climate presents challenges for the global shift to clean energy.

  • Politics
  • Sustainable Investing (ESG)
Julie Moret
Global Head of Sustainable Investing and Stewardship

Key Points

What this is

Russia’s energy battle with Europe has triggered a search to identify energy sources, climate friendly or not.

Why it matters

Countries may resort to fossil fuels to fulfill their urgent energy needs, slowing momentum for green energy such as solar and wind power.

Where it’s going

To become more self-sufficient, Europe and the U.S. likely will accelerate green energy development longer term, creating investment opportunities.

Russia's energy battle with Europe triggered a search to diversify energy sources. Climate friendly or not. While this may slow the pace of the short term, the focus on national energy security and high fossil fuel prices creates potential opportunities in the medium and long term. Let's take a closer look.

 

Russia's attack on Ukraine has brought forth a new political landscape alongside new security concerns. And the green transition sits right in the middle of it all. Russia's cutback of its energy supply to Europe has forced politicians to ensure that energy demand can be met whatever the source. As a result, we believe the approach to the green transition will diverge by region. Europe and Asia in the short term are seeking to fulfill their energy needs any way they can. They're importing liquefied natural gas and increasing production at coal fired power plants.

 

At the same time, however, the high prices of fossil fuels have encouraged massive public and private investment in renewable energy and conservation. Even more governments are signaling they understand the role and nuclear power must play in achieving energy security. As a result, despite the short term pullback, investors should expect a bolstered green transition in the medium term.

 

In the more politicized U.S., some use energy security as the justification to commit more deeply to made in America fossil fuels instead of renewable energy. Unanimous opposition by the Republican Party to green energy threatens the pace of the green transition. However, with fossil fuel prices likely to stay elevated, we think the U.S. will naturally shift towards greener alternatives such as wind and solar. As well as electric vehicles.

 

While we see the urgency to source energy in today's political climate will slow the pace of the green transition in the short term, war in Ukraine has also pushed fossil fuel prices higher, and spurred a renewed focus on energy security. This potentially drives private and public investment in renewable energy and energy conservation for reasons beyond their clean energy merits. We expect this to accelerate the green transition and green investment opportunities in the medium to long term.

Main Point

Need for new energy sources may accelerate clean energy development

The Ukraine war and inflation have spurred an urgent search for new energy sources, resulting in more production of fossil fuels and a potential step back for the transition to more climate friendly energy. Still, the need for energy security and the high prices of fossil fuels likely mean that Europe and the U.S. will accelerate development of clean energy longer term, spurring potential investment opportunities.

MarketScape

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Teal marble rolling ahead of white blocks

Julie Moret

Global Head of Sustainable Investing & Stewardship

Julie Moret, global head of sustainable investing and stewardship for Northern Trust Asset Management, guides the creation of long-term investment value for clients through environmental, social and governance (ESG) risk management, effective engagement, and proxy voting. She oversees sustainable investing and global engagement policies, fosters research and product development agendas, and advances portfolio integration across asset classes.

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About Sustainable Investing

At Northern Trust Asset Management (NTAM), we define Sustainable Investing as encompassing all of NTAM’s investment strategies and accounts that utilize values based and norms based screens, best-in-class and Environmental, Social & Governance (ESG) integration, or thematic investing that may focus on a specific ESG issue such as climate risk. NTAM’s Sustainable Investing includes portfolios designed by NTAM as well as those portfolios managed to client-defined methodologies or screens. As the data, analytical models and aforementioned portfolio construction tools available in the marketplace have evolved over time, so too has NTAM. NTAM’s Sustainable Investing encompasses strategies and client assets managed in accordance with client specified responsible investing terms (historically referred to as Socially Responsible), as well as portfolios that leverage contemporary approaches and datasets, including ESG analytics and ESG thematic investing.

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