27 NOV 2019
Sustainability: The economic argument for investors
Why should investors consider sustainable investments?
The world of finance needs to throw its weight behind the transition to renewable energy and combatting climate change. Investors are increasingly pursuing this goal, particularly given the potential for sustainability to become an extremely powerful driver of performance in the next three to five years, and possibly beyond.
Many of us experienced the internet revolution. It completely changed the way we live, transformed entire industries, brought to life new business models and made others obsolete. It also created some of the most valuable companies in the world today. Sustainability has the potential to do the same, if not more, and could create unprecedented investment opportunities and risks.
How has the economic model changed?
The last few decades observed an economic growth model that relies on ever more consumption, ever more resource extraction, ever more pollution and lots of waste. This model has not always fairly distributed the benefits of that growth and is a source of inequality in our economies today. The complex interaction between economic growth, the planet and our social structures was manageable in 1970, when the global population was around three and a half billion. But today with eight – soon to be 10 – billion people in the world, this growth model simply doesn’t work anymore.
We have already breached four of the nine planetary boundaries that define the biophysical safe operating space for humanity . Crossing these limits leads to potentially irreversible change. If we do not tackle climate risk, for example, then our society and the economic model we know will simply collapse. While economic growth is essential in responding to the challenges facing our societies, for this growth to be sustainable, it needs to deliver inclusive and positive social impact without leaving a negative footprint on the environment. We need to move away from an economy that is wasteful, idle, lopsided and dirty, towards one that is circular, lean, inclusive and clean.
Has the transition already begun?
This transition is already well underway, but it will accelerate going forward, driven by extremely powerful catalysts. In most of the world's major regions, politicians are enacting policy changes and implementing new, often very restrictive, regulations.
Locally, the UAE Vision 2021 National Agenda focuses on improving the quality of air, preserving water resources, increasing the contribution of clean energy and implementing green growth plans. The Dubai Clean Energy Strategy 2050 also aims to produce 75 per cent of Dubai's energy from clean sources by 2050.
Consumer behaviour is also changing rapidly towards a model that is more respectful of the planet and society, and people are ready to pay more for it. Last, but not least, continual technological innovation is providing solutions that enable the development of more efficient, cleaner and often cheaper business models.
A Masdar report published in 2018 on the results of its renewable energy desalination pilot programme, for example, found that one of the most promising solutions was solar-powered reverse osmosis, a technique where saltwater is purified through membranes. This method proved to be up to 75 per cent more energy efficient than the thermal desalination technologies currently used in the UAE.
This transition will require us to completely rethink many established norms. We are going to need to rethink the way we feed ourselves, the way we plan and power our cities, and the way we produce and consume. We will need to completely overhaul how multiple sectors operate – healthcare, energy, food, mobility etc.
How will this impact business?
The impact on business from the transition will be substantial. For example, how will sectors such as transport, construction or aviation adapt to a decarbonised world? How would a company manufacturing gearboxes for the automotive industry adjust if the transition to electrical vehicles happens sooner than expected? How would a company selling bottled water globally adapt to more stringent regulation of plastic, or its prohibition?
As some companies prepare for the transition, we are at a crossroads, with some companies anticipating the profound changes ahead and others in denial. Companies in the former group have the vision and courage to reassess their business models to ensure they are fit for the reality of this far-reaching economic shift. The latter continue to ignore the inescapable forces of change and are at risk of becoming obsolete. They could lose their customers, innovation could render them obsolete, or regulation could severely constrain their business and starve it of capital.
To use an analogy from the animal world, the business world is bifurcating, with eagles on one hand, and ostriches on the other. The Eagles will more likely emerge triumphant from this transition, while the Ostriches – with their heads firmly buried in the sand – risk disappearing all together. This presents a unique opportunity for investors. Selecting companies that will be winners in the future has always been a major source of performance. This differentiation could become even more pronounced, enabling asset managers to deliver very attractive performance.
Moral and ethical considerations naturally lead us towards sustainable investment, but the arithmetic is also very important for investment professionals who have fiduciary duties. It is inevitable that sustainability will be a major source of return in the years to come.
 Source: Stockholm Resilience Centre: J.Lokrantz/Azote. Citation: Steffen et al. 2015. Planetary Boundaries : Guiding human development on a changing planet. Science vol. 347 no. 6223.
By Hubert Keller, CEO Lombard Odier
15 JAN 2020
Rethinking energy mix is the need of the hour
By His Excellency Engineer Awaidha Murshed Al Marar, Chairman of the Abu Dhabi Department of Energy
With an investment of US$163 billion in energy mix the UAE aims to achieve 50 per cent clean energy capacity by 2050
As the world grapples with climate change and growing environmental concerns, we see an unprecedented need to shift from conventional energy sources to renewables. The time is ripe to make the energy transition and as a nation committed to the Paris Agreement, we are moving towards a sustainable future by optimising conventional energy sources and investing in low carbon energy sources such as solar and nuclear power.
Clean energy is the cornerstone of sustainability and drives the UAE’s narrative to achieve a carbon-free future. The UAE has set out national targets to achieve 50 per cent clean energy capacity and to decarbonise the power and water sectors by 70 per cent in the next three decades as part of the UAE Energy Strategy 2050. For total power generation capacity by 2050, the strategy outlines targets of 44 per cent renewable energy; 38 per cent natural gas; 12 per cent ‘clean coal’; and 6 per cent nuclear energy, thereby improving energy efficiency by 40 per cent in all sectors.
While driving the development of a cleaner energy mix, we need to ensure a reliable and secure supply of power to meet the ever-growing energy needs and also create an energy value chain that is economically viable. We believe that leveraging and optimising our natural resources such as solar irradiation, will go a long way in supporting non-petroleum dependent industries.
To this end, Abu Dhabi’s latest solar PV plant made a significant power contribution in 2019 to capacity mix bringing the Emirate closer to its 7% renewables target for 2020. Not only did the solar plant position the emirate on the global map as a leader in photovoltaic energy in terms of renewable capacity, but it also generated power at a record low cost of just 2.94 US cents per kilowatt/hour.
Thereby, furthering our goal of creating economically viable solutions.
Another milestone in the clean energy segment is the Barakah Nuclear Energy Plant in Abu Dhabi, which is nearing completion. Once operational it will offer nuclear power for electricity generation, in line with the UAE’s strategy for peaceful uses of nuclear power.
Yet another revolutionary step in moving away from fossil fuels will be a rollout of electric vehicles (EVs). The move will also involve creating a reliable infrastructure around the same, complete with EV charging stations and regulatory aligned business model. We are currently finalizing a specific policy around EV’s to ensure a large-scale deployment of electric cars takes place without any glitches.
More recently, hydrogen is gaining traction globally as a clean alternative and substitute for natural gas. We see huge potential in ‘green’ hydrogen from surplus solar PV generation, and ‘blue’ hydrogen from natural gas as a sustainable fuel of the future.
While formulating policies and goals, we are mindful of the importance of mobilising community in achieving sustainability and promoting social well-being by creating a cleaner, healthier living environment. Raising awareness about judicious use of energy is also a key element in furthering the cause of reducing carbon footprint. Focusing on small, incremental shifts towards demand side efficiency and developing skills of young professionals who will lead the charge of a greener energy system in the future are top on our agenda.
Underlying these policies and goals is our drive towards a digital economy. Across every touch point in Abu Dhabi’s energy value chain there is deep focus on integrated digitisation, which serves in boosting sector efficiencies and reducing environmental footprint. Digitisation serves as a key to addressing sectoral challenges as well as creating new benchmarks for a sustainable energy future. I see digitisation as a vehicle to achieve the UAE Energy Strategy 2050 targets as well as playing pivotal role in establishing a more diversified economy.
Thanks to a visionary strategy, the UAE is well on its way to becoming a significant global partner in mitigating climate change and harnessing social, economical and health benefits of a more sustainable environment.
29 DEC 2019
Need to Know: Top 10 Facts about Abu Dhabi Sustainability Week
By Her Excellency Mariam Almheiri, Minister of State for Food Security
The ability for a country to act sustainably is a determinant of its successful development. In the context of food security, sustainability means enabling all citizens and residents to have physical and economic access to sufficient, safe and nutritious food for an active and healthy life at affordable prices at all times, including emergencies and crises.
My role as Minister of State for Food Security sees me tasked with ensuring that the UAE is able to deliver food sustainably across the food supply chain - from harvest to the table - to feed the UAE’s growing population, which is expected to add another million or so people over the next 20 years. When you take the UAE’s adverse crop growing conditions into account - its poor soil quality, shrinking levels of groundwater, lack of arable land, and low annual rainfall - it is not difficult to see that this represents something of a challenge.
Thanks to the UAE leadership placing a priority on forging firm and friendly relations with other governments, the UAE has created strong import supply chains that deliver 90% of its total food. Although these have placed the country comfortably at 21st place on the Global Food Security Index, it means that it remains vulnerable to global supply chain disruptions.
To reduce the UAE’s heavy reliance on food imports, my colleagues and I launched the National Food Security Strategy in November 2018. Through its various pillars, the strategy aims to take the UAE from its current 21st place in the Global Food Security Index to being in the top 10 by 2021 and number one by 2051. In devising the strategy, we were acutely aware that its success would depend on our ability to create meaningful partnerships and to involve the community.
Initiating the strategy in the first few months meant finding suitable partners to help get it off the ground. A key pillar is enabling technology-based domestic food production, which has a target of increasing domestic yield by 30% by 2021. One of the first things we did was to remove perceived barriers to adopting technology in this sector. In doing so, we engaged with private sector stakeholders to create 10 new initiatives in 100 days.
Now successfully launched, my office is giving a stronger focus on involving the community – local and global – in our efforts to advance food security. In effect, we are making the community our partners towards our goals. In September this year, we announced, in partnership with Tamkeen, an Abu Dhabi-based company mandated to deliver projects to meet the UAE’s vision of knowledge-based development, the FoodTech Challenge – a global competition that aims to identify and implement sustainable and technology-driven solutions across the food value chain that enhance the UAE’s food security and self-sufficiency at the national, community, and household levels. Launched by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and ruler of Dubai, the challenge is open to all and invites the youth, entrepreneurs and innovators to find solutions across the food value chain to identified challenges in the UAE with a shared prize pool of USD one million for four winners – the largest ever offered for a food technology challenge - winners will receive a host of benefits that include the offer to participate in a six-month business incubation programme by the Catalyst in Abu Dhabi to translate their ideas into actual projects and connection with international investors.
With respect to creating a healthy population, the Food Security Office and the National Program for Happiness and Wellbeing launched the Nutrition Labelling Policy in September this year. This policy sees the adoption of a traffic light system for healthy and less healthy foods based on their ingredients and nutritional content. Red, yellow and green labels indicate sugar, salt and fat content, with the policy based on the results of a field study carried out by the Community Design for Wellbeing Initiative – another important partner who is helping us meet our goals.
Abu Dhabi Sustainability Week (ADSW) is essential to this concept of partnership. Masdar City is already an important ally in our efforts to create an advanced Agritech sector through its initiatives that include the shipping container vertical farming project, aquaculture farming scheme and the ‘Bustani’ Smart Home Farming Showcase. Each year ADSW further raises awareness of the importance of sustainability in all spheres, including food security, and we wish this year’s programme every success.
15 JAN 2020
The Decade of Energy Transformation Lies Ahead of us
As we enter a new decade, IRENA Director-General Francesco La Camera suggests the 2020s will be the golden age of renewables
The 2010s will be remembered as the decade when renewable energy went from the marginal to the mainstream. Cost reductions and the growing climate crisis have propelled renewable energy sources into the social and political discourse in almost every country on earth. Of all the major power generation technologies – traditional or renewable – solar accounts for the largest share of additional capacity over the last 10 years.
Encouraging as this progress might be, the hard work is ahead of us. Our actions in the 2020s will define the long-term future of our economies, our people and our planet. Any chance we have of mitigating the climate crisis and achieiving sustainable development by mid-century, lies in the policies, investments and emission reductions made this decade. And this critical period of action begins in Abu Dhabi at the 10th IRENA Assembly during Abu Dhabi Sustainability Week.
The 2020s are set to be the decade that redefines our socioeconomic system. If successful, we will have unleashed 10 breathtaking years of energy system transformation putting us well on the way to generating nearly nine tenths of electricity from renewables by 2050. The hard work starts now to ensure that by the end of this decade renewables contribute half of all power generation globally.
It could also be the decade in which demand for both coal and oil peaks, where we see 157 million electric vehicles on our roads, and when the last person on earth without reliable and affordable access to electricity is enjoying the benefits of its productive uses. It’s possible. To ensure this happens, however, we must urgently address two key things. Investment and policy.
Planned energy investments are currently misdirected and should pivot to low-carbon technologies. By our calculations more than USD 18 trillion of energy investments by 2050 are fossil fuel related, including exploration and production of gas, oil and coal. At best, these investments risk stranding trillions of dollars of assets in uneconomical fuels in just a few years. At worst, they threaten to blow the world’s carbon budget this decade, and with it any hope of a climate safe future.
To hold rising temperatures in the 10 years ahead of us, annual investments in renewable energy must rise from today’s USD 330 billion to nearly USD 750 billion per year. Redirecting capital into more socially and economically beneficial low-carbon technologies, is imperative and must start now. It is also the most economic climate action pathway. Inaction will cost up to 7 times more than the capital needed to transform the energy system.
The Gulf Corporation Council (GCC) countries are taking up the renewable energy race and have everything to gain from moving quickly into a leadership position on future energy. Conservative estimates suggest that by 2030 the region could save more than 350 million barrels of oil equivalent and create close to a quarter of a million new jobs by executing current plans. Solar and wind resources are rich and attractive, and policies have made it cheaper to generate power from renewables than from any other source. Moving from oil, gas pipelines and coal shipments to solar panels and wind turbines strengthens energy security, supports energy independence and builds prosperity for all, not just for the few.
There is no question we are moving in the right direction. In the last decade renewable power generation capacity has doubled and its growth has consistently outpaced fossil fuels since 2012. A third of global power generation capacity today is renewable. This is the result of investments of around USD 3 trillion over the last 10 years including large hydro. In the decade of transformation ahead of us however, the next three trillion dollars of renewable investments should take around four years.
Policies must align with the opportunity and reflect the necessity. Under current policies, the peak production of fossil fuels happens somewhere between 2030 and 2035, dramatically out of step with the Paris Agreement which requires a peak in 2020 and a steady, continuous decline from that point. Furthermore, renewable energy targets in nationally determined contributions (NDCs) lag market progress. By 2030 NDCs should target double the amount of renewable capacity, they do today.
It is no longer a question of direction, but of speed. With policy support, smart investment decision-making and clear recognition of the benefits associated with a renewables-based energy system, the speed of transformation ahead of us could rival the that of any in the post-industrial age. Anything short of this, risks everything.