How technology can support the transition to the green economy and the role commercial lenders will play in it

In early 2021, when Storm Christoph hit the north of England, our Manchester colleagues experienced extreme flooding. A few months later, the same happened to our colleagues in London. Then our colleagues in Bangalore. Then our colleagues in New York City. Events like these should be rare and unprecedented, but instead they are becoming regular events around the world that leave damage, disruption and, in some cases, death in their path.

For many, the answer to addressing the challenge of climate change lies in technology. The majority of global greenhouse gas (GHG) emissions come from a handful of sectors, and each of these is disrupted by technology:

Automotive: The automotive industry is seeing a disruption with the evolution of battery and fuel cell technology. The demand for electric vehicles (EVs) is increasing – the pace of this technological disruption is staggering – three years ago, electric vehicles accounted for just 2% of all new car sales in the United States. A year later, it doubled to 4%. Last year it doubled again to 8% and this year it is expected to double again to 16%. Within 10 years, most new car sales will be electric (source: iea.org). This will impact the entire automotive value chain, affecting both upstream and downstream sectors / activities. Banks therefore need a lending understanding of how risk falls along the value chain and the ripple effects that a carbon mitigation lever (such as technology disruption) could have across the industry.

Building and Construction: Building and construction account for a significant portion of global greenhouse gas emissions, with the materials used, as well as the heating, cooling and lighting of buildings, all contributing to the footprint of industry carbon. Industry players generally all agree that building greener infrastructure is key to reducing industry emissions. As a result, more and more countries are enacting energy codes for buildings, green building certification is on the rise, and investments in energy efficiency technologies such as smart homes and automation systems are on the rise.

Manufacturing: Until now, manufacturing companies have been relatively shielded from regulatory pressures, but now they face increasing pressures from shareholders and consumers. To address this issue, manufacturers will need to consider the implications along the entire value chain, at the design, procurement, construction and operation stages. New technologies that reduce production steps, material usage or parts counting will reduce the energy embedded in the value chain and decrease the use of raw materials. This also applies to technologies that enable the production of materials or components that increase recycling and recyclability.

Oil and Gas: Directly and indirectly, the oil and gas industry accounts for 42% of global greenhouse gas emissions. As a result, lenders are facing increasing pressure from shareholders to reduce their lending to the industry, and as fuel prices rise, economies and governments around the world are catalyzing efforts to switch. to more sustainable energy solutions. Fortunately, renewable technologies have gotten cheaper: the cost of solar in the United States has fallen by more than 70% since 2011, while the cost of wind has fallen by nearly two-thirds.

Agriculture: The agricultural sector is ready for disruption and agritech (agricultural technology) is facilitating it. These include technologies such as: precision farming, protein alternatives, cultured meat and carbon sinks. Studies suggest the global agritech market will be worth $ 22.5 billion by 2025, up from $ 9 billion in 2020.

All of these technologies will require investment: according to McKinsey, the worldwide net cost reaching net zero by 2050 would be £ 257 trillion or £ 9.2 trillion annually. This presents a huge opportunity for commercial lenders to help their commercial customers transition to the green economy given the level of investment required.



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Disclaimer

The views expressed above are the author’s own.



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