It’s official: yesterday was the hottest day in British history as the mercury broke the 40-degree Celsius mark for the first time ever. And as the temperature soared blazes broke out across the country, scenes more familiar in California or Southern Europe than the home counties.
Evidence of an ensuing climate catastrophe or just a run-of-the-mill summer heatwave?
There are plenty of people who prefer, for whatever reason, to think the latter, harking back to the glorious summer of 1976 and choosing to deny clear statistical evidence that weather extremes are becoming more common and more intense all over the world or that water scarcity is a global problem that’s getting worse.
Another common denial is that even if climate change is happening it isn’t man-made, ignoring the fact that atmospheric concentration of carbon dioxide has been rising since the industrial revolution began and hits new record levels every year.
Investors should be careful not to adopt such head-in-the-sand attitudes, though, because it doesn’t really matter where you sit on the climate change acceptance-to-denial spectrum – we’re going green.
As Cabinet Office minister and COP26 president Alok Sharma put it in parliament today, “Anyone investing in assets which might ended being stranded has to be very clear about the financial decisions they are taking”, pointing out that $130 trillion of assets signed up to Net Zero at the recent Glasgow summit.
The oil industry may have had its best year in a while thanks to Putin and the ensuing chaos in the energy markets, but environmental concerns will dictate the long-term future of the stock market as fossil fuels are inevitably phased out – even if that takes longer than many green evangelists predicted.
And whether climate change is imagined or real, natural or man-made, huge sums are regardless being invested in technologies to reduce pollution by lowering energy or water use and generating power more cleanly. Aim, in particular, is a hotbed of clean technology, with companies specialising in everything from renewable energy to lithium mining, to high-tech insulation and beyond.
The progress they've made has also been somewhat obscured, not just by this year’s energy market shenanigans, but by the ongoing row over ESG, a dispute which came to a head when HSBC’s now-former head of sustainability, Stuart Kirk, gave a speech entitled “why investors need not worry about climate risk” in which he candidly pointed out that much of the discussion around ESG was, as he later put it, “bonkers”.
In fact, Mr Kirk wasn’t arguing that climate change isn’t real - “I don’t doubt the science at all,” he said – but that the often-hysterical debate across the investment industry wasn’t helpful. Indeed, his speech seemed to confirm the widely held view that the ESG industry was just another way for the investment management industry to gather assets, painting dirty companies green rather than directing investment towards projects which could genuine help us to both slow climate change and live with it.
That seems to be changing already, with hydrogen in particular attracting much attention as a Net Zero solution – in the last week alone Johnson Matthey (JMAT) announced that it’s building an £80m hydrogen Gigafactory, while the UK government is set to announce further subsidies for green hydrogen after meeting industry leaders today, following the launch of its £240m Net Zero Hydrogen Fund in May.
It wants 1 gigawatt of hydrogen electrolysers delivered by 2025, while the EU recently agreed €5bn of state support to build 10 gigawatts of electrolyser capacity, in both cases good news for the army of hydrogen companies on London’s markets that are involved in various parts of the hydrogen supply chain. That includes oil major Shell (SHEL) which has started building a 200mw wind-powered electrolyser in the Port of Rotterdam.
Nevertheless, many of the smaller listed hydrogen players, particularly those trading on Aim, have had a tough year as stock- and energy-market realities caught up with their often-excessive valuations. But that doesn’t reflect the massive progress they’ve made bringing green hydrogen closer to commercial reality. It could be time to take a second look.