According to Eoin Murray, head of investment at Federated Hermes, security of supply concerns prompted by Russia’s invasion of Ukraine are speeding up the transition to net zero.
“It should never have taken the illegal invasion of a democratic, sovereign nation, with all the horrors we are seeing unfold in Ukraine, for the world to wake up and realise we need to go further and faster in bringing forward the transition to net zero. Yet here we are,” Mr Murray wrote in a recent blog post published on Investor Daily.
In the West, particularly in Europe, countries are re-examining their energy mix and putting in place plans to ensure a stable, secure supply while shifting away from fossil fuels and towards renewables.
“We have been gifted a second chance to reflect on what a resilient, sustainable energy system might look like, even if security-of-supply concerns drive us to surprising conclusions such as boosting near-term oil and gas storage capabilities. Whereas the energy transition was once talked of in terms of decades, there is fresh urgency at play,” Mr Murray said.
“The EU has announced a plan that will see a faster transition to clean energy, jointly committed to by the US. The result is that natural gas imports from Russia to the EU will be scaled back by as much as 65 per cent by the end of this year”.
In its most recent global weekly commentary, BlackRock Investment Institute similarly predicted that the drive for greater energy security would accelerate the transition to net zero in the medium term, especially in Europe.
BlackRock did, however, caution that the green transition would be accompanied by costs and higher inflation, but noted that “the economic outlook is unambiguously brighter than a scenario of no climate action or a disorderly transition”.
“Both would generate lower growth and higher inflation, in our view. Risks around a disorderly transition are high – particularly if execution fails to match governments’ ambitions to cut emissions.”
According to Mr Murray, investors are feeling this sense of momentum too.
“Given the financial losses incurred by much of the industry and end investors through exposure to Russian oil and gas, never more so than now have we had such a vested economic interest in taking on advocates of the status quo and pushing governments to make urgent changes to create the right context for a sustainable future,” Mr Murray said.
“Putin’s invasion has pushed asset managers to think of renewables as representing 'freedom energy', putting more of us on the same page about the way forward”.
As such, Mr Murray expects energy investment in favour of the transition to accelerate in the medium-term.
“Energy efficiency-focused investments could benefit from high energy prices as these drive re-investment into the sector,” Mr Murray said.
“Investors will be forced to consider alternative sources of supply, to avoid dependency on undesirable state actors. As we reflect on the vulnerabilities of individual technologies to high-risk minerals—storage, nuclear and wind look most in danger—this may create space for more alternatives to emerge.”
“We may now finally be on the verge of a wholesale decarbonisation that goes far deeper than adopting electric vehicles and substituting fossil fuels for renewables. Even sectors more stubborn to adaptation are unlikely to stay that way, including production of industrial metals, chemicals, fertiliser, and long-distance and heavy transport.”
According to BlackRock, likely benefactors from the transition to net zero are tech and healthcare, because of their relatively low carbon emissions.
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
