UK-listed clean energy and technology stocks are up 170% on average for the year, but investment levels will need to continue for decades to meet climate change goals, according to analysis by finnCap.
The analyst’s latest quarterly report found annual investments in renewables of $350bn (€291bn) are required for the next 30 years to meet the Paris Agreement goals on climate change.
The report highlights how the “good versus bad” energy split has been evidenced by a “swathe of write-downs” in the book value of assets from big international oil companies (IOCs).
Such write-downs have already amounted to $48bn across the major IOCs in 2020 alone, said finnCap.
The report highlights how investment in renewable energy remains robust, but at current levels of around $350bn a year it needs to be maintained, or exceeded, for another 30 years in order to generate an above 50% clean energy mix by 2050.
The report highlighted how companies have “doubled down on their ESG stances” and investors have rewarded them.
It cites Danish wind developer Orsted, formerly state-owned oil and gas and coal-fired power generation company Dong Energy, which had one of the poorest carbon dioxide emission footprints globally due to its heavy coal usage.
After “sweeping changes” including selling its oil and gas business, Orsted has become the global leader in offshore wind power, with 30% of the market.
The report said that IOCs should be “adequately equipped” to deliver the energy transition given their global reach, large balance sheets and project management capabilities.
The proportion of their capex focused on clean energy investments has been rising but will need to increase further, the study found.
The report also suggests that IOCs may need to take a leaf out of the financial crisis approach to banks and split themselves into “good energy” (renewables and gas) and “bad energy” (oil, oil sands, refining, marketing and petrochemicals) to accelerate the energy transition.
Splitting up the companies would not only give investors choice but also allow management a greater focus on core competency, removing corporate contradictions and helping to accelerate the energy transition, the report stated.
The report also highlighted that finds that small and mid-cap oil exploration and production companies that are serious about long-term growth are going to have to demonstrate their sustainability credentials.
finnCap research director Jonathan Wright said: “Clean, limitless in supply, increasingly competitive on costs, future-proofed, socially desirable and governmentally encouraged, renewable energy is here to stay.
“What’s more, with institutional investors increasingly focused on sustainability, even SMID cap oil and gas exploration and production companies are going to have to present a convincing ‘E’ component to their ESG strategy if they are to attract these investors.”