One striking sea change has been the emergence of companies that are making transitions a strategic business imperative. In decades past, investors could draw a bright line between alternative energy firms and fossil-fuel companies. But today, many fossil-fuel firms have committed to being net-zero by 2050, and are exploring ways to reduce the emissions intensity of the actual production processes, as well as pivoting away from exposure to carbon-based energy commodities.
“We see traditional energy firms developing hydrogen technologies, as an example. And the enthusiasm around the electrification of vehicles has opened up a huge opportunity set across the value chain to get into all the technologies needed for electric cars,” Grosskopf said.
While carbon credits as an asset class have roots stretching back several decades, they’ve only recently blown up in popularity among investors. The emissions trading markets have come into their own as an opportunity to invest in the global energy transition, though whether they can drive that change is an open question.
“If the price of carbon credits goes up, it’s going to incentivize industry to reduce their intensity more quickly,” Grosskopf says. “There’s also a multibillion-dollar opportunity in carbon offsets as companies are unable to reduce all of their emissions.”
Across the world, inflation is emerging as a major theme in capital markets. As central banks pull out all the stops to bring price stability back to the global economy, interest rates are rising dramatically. Increasing interest rates are eating into the net present value of companies’ long-term cash flows, which has posed a challenge for capital-intensive cleantech companies that are counting on revenue streams far into the future.
