CIO Insights Resilience versus recession 10 ESG: energy transition – climate is macro essential ESG investment aims to change the way we live and do business. A fundamental shift needs to take place, as virtually all experts agree that the “triple planetary crisis” – climate change, pollution and loss of biodiversity – constitutes an existential threat to humankind.1 The primary cause of the structural market failure that has led to this crisis is that we have neglected to integrate the systematic value of nature into our economic model. Overcoming this challenge therefore requires a holistic approach that incorporates all the relevant economic and social aspects of the necessary transformation. These aspects are far more expansive than climate change and need to include social and governance dimensions. Nevertheless, the energy transition must remain a key element in strategies to overcome the triple planetary crisis. According to estimates, energy production 2 accounts for around three-quarters of the world’s greenhouse gas (GHG) emissions. The significance and urgency of the energy transition for the climate was highlighted once more 3 at the UN Climate Change Conference 2022 (COP27) in November. Worldwide, great efforts are being made to implement the energy transition. These include the Inflation Reduction Act (IRA), probably the most significant climate protection legislation in U.S. history. This envisages providing a total of USD369bn to promote clean energy technologies and greater environmental equity at the local government level.4,5 In the European Union (EU), increasing the share of renewable energy used in different industry sectors is seen as a crucial building block for achieving EU energy and climate targets. These envisage a reduction in greenhouse emissions of at least 55% by 2030 compared with the 1990 base year, and climate neutrality in Europe by 6 2050. Figure 15: Investments critical to achieve energy transition Source: Refinitiv, Bloomberg Finance L.P. Data as of November 3, 2022. Global investment in the power sector by technology USD billion % 1000 100 800 80 600 60 400 40 200 20 0 0 2011-15 2016 2017 2018 2019 2020 2021 Renewable power (lhs) Electricity networks (lhs) Fossil fuel power (lhs) Nuclear (lhs) Battery storage (lhs) EMDE* share (rhs) In Europe, Middle East and Africa as well as in Asia Pacific this material is considered marketing material, but this is not the case in the U.S. No assurance can be given that any forecast or target can be achieved. Forecasts are based on assumptions, estimates, opinions and hypothetical models which may prove to be incorrect. Past performance is not indicative of future returns. Performance refers to a nominal value based on price gains/losses and does not take into account inflation. Inflation will have a negative impact on the purchasing power of this nominal monetary value. Depending on the current level of inflation, this may lead to a real loss in value, even if the nominal performance of the investment is positive. Investments come with risk. The value of an investment can fall as well as rise and you might not get back the amount originally invested at any point in time. Your capital may be at risk. This document was produced in December 2022. 25