Going net zero by 2050 will cost investors $100 trillion

According to a new report from BNY Mellon Investment Management, achieving global net zero goals will require an additional $100 trillion by 2050.

The global economy is currently behind schedule in achieving net zero goals by 2050 and the Paris climate goal of limiting global warming to at least 2 degrees.

A joint report with Fathom Consulting found that the world will need $100 trillion, or 15 percent of total projected global capital spending, over the next 30 years.

Shamik Dhar, chief economist at BNY Mellon Investment Management, said: “Achieving net zero by 2050 will require transformational investment, but it is achievable. Get it right, and the payoff to society and investors can be significant. Investment is only one side of the coin.

“Broader policy action is needed to accelerate the pace of decarbonisation, and there have been calls for a global carbon tax, but we believe a co-ordinated approach is unlikely, so other incentives need to be considered.

“Governments should encourage and incentivize private sector investment while reducing transition risks through policy leverage.”

About a third of total investment will need to come from Europe and the US, with S&P 500 companies needing to channel $12 trillion into environmental investments.

Emerging markets, more vulnerable to climate impacts, will need to raise more than half of the $100 trillion, and the report says China alone will need a quarter.

India, South Korea and Indonesia, along with China, are expected to grow faster than the global average and currently use a lot of coal to generate electricity. This means they will need a larger share of green investment than their current share of global GDP.

“With cheaper decarbonisation solutions compared to developed economy peers, the shift to emerging markets can potentially lead to greater returns, both financial and environmental, for impact investors,” the report said.

Unsurprisingly, energy and utilities account for nearly half of total corporate spending on green investment, but only 6 percent of total market capitalization.

However, investors are avoiding these sectors due to climate-related concerns, including relatively high carbon footprint and transition concerns.

The report says: “Here’s the problem: the industries that may need most of the investment to reach net zero by 2050 seem to be shunned by some investors, at least in part, for the same reasons.

“If the transition is to be achieved, these sectors will need capital and investors will play an important role in providing that capital; to be most effective in minimizing transition risks and promoting decarbonisation, investors will need to identify those companies with the most robust decarbonisation and green investment plans.”

Christina Church, global head of responsible strategy at BNY Mellon Investment Management, added: “Divestment is a last resort if a company cannot transition. Engagement allows capital to be channeled to the sectors and regions that need it most. Here are the biggest opportunities for investors to transition.”