LOW TO NO GROWTH WITHOUT ENERGY TRANSITION: AXA IM
SYDNEY: Not acting swiftly on energy transition means the world will struggle to achieve any real economic growth in the coming years, according to AXA IM.
Speaking at today's Portfolio Construction Forum Markets Summit 2021 in Sydney, Mr Chris Iggo, Chief Investment Officer, AXA IM Core Investments, said the world has a great need for economic growth coming out of the pandemic as concerns increase about debt and restoring employment.
However, Mr Iggo said that without a swift transition to renewable energy sources, many business models will gradually become uneconomic.
"If you are a carbon emitter, you are increasingly paying a higher cost for that. The scope of companies and activities affected is growing, and continuing with the status quo is becoming uneconomic," said Mr Iggo.
In addition to the Energy industry, Mr Iggo highlighted business models in the Tourism/ Travel, Agriculture, Infrastructure and Forestry industries as being particularly at risk.
While many of the industries are among Australia's largest revenue generators, Mr Iggo said that Australia could see substantial growth prospects as one of the great solar and wind energy producers.
"This could be a great long story for Australia and some emerging market countries which are renewable energy-rich. A full transition to renewable energy could really transform these economies and also significantly increase their political power on the global stage."
Find the energy FAANGs
A global energy transition can be a catalyst for economic growth, and from an investment point of view creates enormous potential. However, investors need to engage urgently to protect portfolios and to explore growth opportunities.
"Investors will need to think hard about asset allocation. As we go through the energy transition, there will be assets that become stranded or worthless. Growth won't come from the same areas it has in the past."
Mr Iggo said growth opportunities would emerge from the transition itself and the subsequent economic benefits that will flow from a radically changed energy system.
"The growth aspect is very clear - net zero by 2050. There are some fairly easy things we can do to mitigate, but it also gets complex.
"The cost of renewable energy is falling massively. There are opportunities to invest in the new technology and the companies developing the new processes. There is growth in strategies that are available now to invest in the transition.
"However, investors need to think about sustainability – that is, picking business models that will be successful over the long term. Companies focused on the transitioning are likely to achieve earnings comparable to what the digital companies have generated for the last 30 years. But not every company will be a winner. It will be about picking the Apples or Googles of a very different future."
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AXA Investment Managers (AXA IM) is a responsible asset manager, actively investing for the long-term to help its clients, its people and the world to prosper. Our high conviction approach enables us to uncover what we believe to be the best global investment opportunities across alternative and traditional asset classes, managing approximately €858 billion in assets as at the end of December 2020.
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