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A PIVOTAL MOMENT IN HISTORY: GENERATION INVESTMENT MANAGEMENT'S 6TH ANNUAL SUSTAINABILITY TRENDS REPORT HIGHLIGHTS THE FRAGILITY OF PROGRESS TOWARD AN ACCELERATED CLIMATE TRANSITION
"Amid the reasons for optimism, we cannot afford complacency in our efforts to confront the climate crisis. The report outlines those areas of the global economy, particularly in the most highly-emitting sectors, which still require ambitious leadership, tangible action and robust finance. If progress is to be made, the momentum must accelerate, yet it continues to be threatened by a challenging economic and political environment."
Two major developments this year have raised the chances of a rapid acceleration in the transition to clean energy. The war in Ukraine has thrown the risks of European dependence on Russian fossil fuels into focus, prompting the EU to raise its goals for renewable energy. Meanwhile the Inflation Reduction Act in the United States promises to help cut emissions by as much as 40 percent below 2005 levels.
While these are encouraging signs, the report demonstrates how policy, technology, public opinion and capital allocation decisions could all influence the long-term outcome of this pivotal moment:
The war in Ukraine poses a threat to Europe's clean energy transition as urgent investment into fossil-fuel infrastructure independent of Russian supplies risks locking in dependency on dirty energy (e.g., new pipelines and new import terminals for liquified gas). Simultaneously, the dangers of fossil-fuel dependency are more starkly revealed than ever. How Europe resolves the tension between its near-term supply crisis and its long-term interests will determine whether the EU remains a world leader in battling the climate crisis.
Since the invasion of Ukraine , the EU has pledged to accelerate its already ambitious goals to reduce greenhouse gas emissions. Meeting the new targets will require a radical, rapid scale-up in renewable energy. This acceleration will be supported in the United States by the Inflation Reduction Act which commits hundreds of billions of dollars to the development and deployment of climate solutions.
The sense of urgency means there is a need for speed in the European energy transition. However, barriers remain, even in the roll-out of developed technologies such as onshore and offshore wind projects, where significant regulatory and technological obstacles remain for both. The financing mechanisms to support the development of large renewables projects are a work in progress and require urgent public policy attention. The EU has a plan to solve many of these bottlenecks, and the speed at which these are tackled will show the commitment of the bloc to the energy transition.
Developments in policy and public climate investment funding are highly encouraging. The energy security crisis in Europe sets the region in a position to develop cost-effective climate solutions that will benefit not only member states but also can be exported, resulting in significant economic gains from becoming a main supplier of the climate solutions the world needs. However, these gains remain fragile. The past has shown that public concern about the environment weakens in times of economic distress. In Europe and the United States , the newfound commitments will need to be defended as the political and economic environment becomes more difficult.
Other accelerating trends highlighted by the report include:
Generation Investment Management LLP is dedicated to long-term investing, integrated sustainability research and client alignment. It is an independent, private, owner-managed partnership established in 2004 and headquartered in London , with a US presence in San Francisco . Generation Investment Management LLP is authorised and regulated in the United Kingdom by the Financial Conduct Authority. In the US Generation operates via Generation Investment Management US LLP, a Registered Investment Adviser with the Securities and Exchange Commission. www.generationim.com
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