The capex costs of reaching the Paris goals

Disclaimer

1. General
Please read this information carefully.

This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 2 (dealing in futures contracts); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

2. Important risk disclosures
Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:

Some Funds are subject to investment, market, equities, liquidity, counterparty, securities lending and foreign currency risk and risk associated with investments in small and/or mid-capped companies.
Some Funds are subject to the risks of investing in emerging markets which include political, economic, legal, regulatory, market, settlement, execution, counterparty and currency risks.
Some Funds may invest in China A shares directly through the Qualified Foreign Institutional Investor (“QFII”) scheme and / or RMB Qualified Foreign Institutional Investor (“RQFII”) scheme and / or Stock Connect programmes which may entail additional clearing and settlement, regulatory, operational, counterparty and liquidity risk.
For distributing share classes, some Funds may pay out dividend distributions out of capital. Where distributions are paid out of capital, this amounts to a return or withdrawal of part of your original investment or capital gains attributable to that and may result in an immediate decrease in the net asset value of shares.
Some Funds’ investments maybe concentrated in one region / one country / one sector / around one theme and therefore the value of the Fund may be more volatile and may be subject to concentration risk.
The risk exists that the quantitative techniques used by some Funds may not work and the Funds’ value may be adversely affected.
In addition to investment, market, liquidity, counterparty, securities lending, (reverse) repurchase agreements and foreign currency risk, some Funds are subject to risk associated with fixed income investments like credit risk, interest rate risk, convertible bonds risk, ABS risk and the risk of investments in non-investment grade or unrated securities and the risk of investments made in non-investment grade sovereign securities.
Some Funds can use derivatives extensively. Robeco Global Consumer Trends Equities can use derivatives for hedging and efficient portfolio management. Derivatives exposure may involve higher counterparty, liquidity and valuation risks. In adverse situations, the Funds may suffer significant losses (even a total loss of the Funds’ assets) from its derivative usage.
Robeco European High Yield Bonds is subject to Eurozone risk.
Investors may suffer substantial losses of their investments in the Funds. Investor should not invest in the Funds solely based on the information provided in this document and should read the offering documents (including potential risks involved) for details.

3. Local legal and sales restrictions
The Website is to be accessed by “professional investors” only (as defined in the Securities and Futures Ordinance (Cap.571) and/or the Securities and Futures (Professional Investors) Rules (Cap.571D) under the laws of Hong Kong). The Website is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of the Website is prohibited. Persons in respect of whom such prohibitions apply or persons other than those specified above must not access this Website. Persons accessing the Website need to be aware that they are responsible themselves for the compliance with all local rules and regulations. By accessing this Website and any of its pages, you acknowledge your agreement with understanding of the following terms of use and legal information. If you do not agree to the terms and conditions below, do not access this Website or any pages thereof.

The information contained in the Website is being provided for information purposes.

Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.

4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.

5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.

Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.

6. Third party websites
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage. Third party off-site pages or websites are provided for informational purposes only.

7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.

Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.

Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.

8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.

9. Privacy
Robeco guarantees that the data of persons accessing the Website will be treated confidentially in accordance with prevailing data protection regulations. Such data will not be made available to third parties without the approval of the persons accessing the Website, unless Robeco is legally obliged to do so. Please find more details in our Privacy and Cookie Policy.

10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong.

Please click the “I agree” button if you have read and understood this page and agree to the Disclaimers above and the collection and use of your personal data by Robeco, for the purposes for which such data is collected and used as set out in the Privacy and Cookie Policy, including for the purpose of direct marketing of Robeco products or services. Otherwise, please click “I Disagree” to leave the website.

Green bonds offer an opportunity to compare the environmental impact of a range of different green projects when using a standardized measure. We use the unit measure tCO₂e avoided¹ per million euros invested to evaluate the impact of green bond projects across sectors and regions. Our research finds that not all investments in green projects have the same impact: some are more efficient at reducing carbon emissions than others. Using this information, and applying the inverse of our unit measure, we are able to estimate how much capex is needed to achieve the goals of the Paris Agreement.²

Vast amounts of green funding needed

Extensive investments are needed to achieve the global ambitions of net zero carbon emissions by 2050. To put the scale of the funding that is needed to transform the world economy into perspective, the International Renewable Energy Agency (IRENA, 2021) estimates that USD 4.4 trillion must be invested annually by 2050 for a 1.5°C climate pathway. This is to finance projects with an abatement value of approximately 1.23 GtCO₂e per year,³ including energy transition technologies (renewable energy, end-use electrification, hydrogen innovation) and carbon removal measures. This amount of investment will imply a cost of USD 3,550 per ton of CO₂e reduced.

Accounting for the world’s largest asset class, the global fixed income market has a critical role to play in financing the transition to global net zero emissions. The rapidly growing green bond market will play a vital part in this.

Robeco’s fixed income team has been investing in green bonds since 2013 and uses its proprietary five-step green bond screening process to determine whether bonds truly are green. By the end of September 2021, Robeco’s investments in green bonds totaled approximately EUR 3 billion.

Impact reporting of green bonds provides useful information that allows us to assess green projects across sectors and regions from a carbon-abatement-efficiency perspective. We define this comparison as a ‘green impact premium’. This, in turn, enables us to assess the best approach to follow in funding the transition to a green economy.

Deriving a metric to assess green projects

We applied information from more than 440 green bond impact reports from 118 different issuers (from 26 countries and 13 different sectors), and calculated the avoided tons of CO₂e emissions per million euros invested for each green bond.

Derived from green bonds, this metric allows investors to compare the climate change mitigation impact of green bonds and simplifies impact reporting for issuers as well as investors. Investors can aggregate the impact metrics of different bonds in their investment portfolios to obtain a portfolio-level impact indicator and, in this way, managers interested in the mitigation potential of their portfolios can use this indicator to select green bonds that are the most efficient from a carbon abatement perspective.

There were interesting regional differences in these findings. The abatement efficiency of renewable energy projects was higher for projects located in countries with carbon-intensive energy schemes. These projects avoided 78% more CO₂e emissions than projects in Europe, implying an average capital cost of EUR 736 per ton of CO₂e avoided, significantly below our estimate of the global average for the sector.

On average, projects related to green buildings produced the lowest level of greenhouse gas abatement compared to other types of projects: they facilitated the avoidance of 12 t CO₂e per million euros invested. We believe there may be two reasons for this relative underperformance in abatement efficiency. First, the building sector is less expensive to decarbonize and has less abatement potential than other sectors. Secondly, there has been significant progress in improving the energy efficiency of buildings across countries, reducing the current cost differential between green buildings and traditional ones.

Low-carbon transportation projects, which include infrastructure for clean energy vehicles (electric, hydrogen, hybrid), public, rail, and multimodal transportation, are also shown to have high CO2₂ reduction potential, at 240 t CO₂e per million euros invested. Within this category, we found that public transportation projects (passenger rail transport, tram) have higher abatement potential than passenger cars and light commercial vehicles (41 t CO₂e per million euros invested).

The activity with the second-largest abatement potential is energy efficiency (smart grids, district heating, energy storage, heat pumps) with 631 t CO₂e per million euros invested. It is expected that energy efficiency improvements will contribute 25% of the total mitigation needed to be aligned with a 1.5°C scenario (IRENA, 2021). One clear example is related to heat pumps, which can be powered by renewable electricity and achieve two to five times higher energy efficiency than fossil-fueled boilers.

Assessing the investment opportunity and its scale

Our findings suggest that the existing technology gap between green and traditional alternatives is smaller in the building sector than in the energy sector, which has implications for what investments should be targeted. In particular, sectors in which unabated emissions are higher and technology gaps still exist, such as the energy sector, should receive more abatement investment, to smooth their decarbonization pathway.

Considering the implicit costs of investing in renewable energy and energy-efficiency projects, such as in end-use electrification, power grids, etc., and using the information derived from the green bond impact reports, we can estimate the total value of investment needed to achieve net zero. Our calculations show that the world will need to invest EUR 121.7 trillion in these sectors by 2050. This represents an average annual fund requirement of EUR 4.1 trillion.

To achieve this, the annual capital expenditure in renewable power generation must multiply by 4.5 times, while energy efficiency capex must increase by 2.5 times.

Important information

The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong. This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions. The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.