Large industry calls for increased ESG investments to mitigate its carbon footprint

Accelerating the pursuit of net-zero emissions in vital sectors to certify energy neutrality by mid-century requires greater investment efforts. Following the two-year stock market bonanza in ESG criteria during the height of the Great Pandemic, both companies and funds are united in their vision to bolster green finance for corporate value creation and to accelerate the journey towards sustainability in alignment with the 2030 green roadmap.

By Ignacio J. Domingo

The decarbonization of industries represents the cornerstone on which the challenge of addressing climate change is built and the theorem on which science places its trust to eliminate CO2 emissions by 2050. 

The consulting firm McKinsey has conducted a detailed analysis of the operational scenarios within nine strategic sectors. This analysis aims to certify the climate goals for the current decade and includes specific solutions, research and funding strategies, as well as concrete sustainability timelines aligned with corporate activities. 

Experts say that the electricity sector is ready to transition towards energy neutrality in this decade. This is due to an 80% reduction in the cost of its solar projects and another 40% reduction in wind power generation costs. Nevertheless, the success of this translation requires an expansion of its renewable electric services and the establishment of flexible production facilities to align its offer with market supply and demand. 

Oil and gas companies should diversify their investment portfolios and focus their financial expenditures on new technologies and alternative ventures, such as hydrogen, by exploring new capital-raising opportunities. “It is imperative for their executives to rebalance their portfolios and prioritize asset acquisition to fortify the core of their strategic plans, distancing themselves from fossil commodities.” 

In the area of land transportation, it is emphasized that low-emission vehicles have propelled the sector to new heights. By 2035, “all family car sales in the U.S., China, and Europe will feature electric technology,” provided that their companies adapt to new regulations, streamline their value chains, secure the supply of manufacturing materials, and channel their investments into expanding charging networks, exploring hydrogen and biofuel propulsion alternatives, or innovating and developing self-driving electrified trucks.  

The aviation and maritime sectors are urged to modernize their fleets and embrace sustainable fuels. For instance, airlines should consider a gradual but steady switch to SAF hydrocarbons as a replacement for kerosene. Merchant ships should integrate zero-emission fuel technology. This would reduce their reliance on fossil fuels by 70% to 100%, with readily available solutions. This becomes particularly feasible if they initiate the creation of “green corridors” between ports and airports committed to achieving net-zero emissions.  

The aluminum industry is encouraged to promote the adoption of renewable energy, particularly green hydrogen, at its production facilities, even though demand remains limited. It should also make substantial technological investments. In the case of the cement industry, it should explore alternative efficiency approaches such as biomass, further advance carbon capture policies, and enhance its manufacturing capabilities through digitalization.  

For mining companies, it is recommended to synchronize their rapid production processes with decarbonization efforts and the adoption of technology in line with the speed dictated by their extraction plans. This involves using green fuels and renewable electricity, which can lead to reduced costs and competitive advantages. As for food companies, the advice is to plan their investments, focusing on technologically sustainable solutions for fertilizing fields, farms, and crops. Additionally, they should equip facilities with production models geared towards sustainable foods, as this market is projected “to move a $25 billion global market by 2030.” 

McKinsey’s analysis underscores the need for these productive sectors to raise their capital requirements to enhance asset value and generate returns. Or, more precisely: green finance, which adheres to environmental, social, and corporate governance (ESG) criteria, along with ever-stricter accounting and auditing standards, as their preferred means of financing. 

The data supports this. ESG capital has served as the financial driver behind the journey towards net-zero emissions over the past five years. In 2022, assets surpassed $37 trillion, as reported by the market research firm FactMr. Their projections for this year stand at $39.3 trillion, and it is anticipated to grow to $72.4 trillion a decade later, in 2033.  

Nevertheless, its market entry has been no bed of roses. Bloomberg Intelligence points out a “pause in investment” following the post-Covid period of 2020-2021, during which portfolio valuations reached $35 trillion. “A net-zero economy will only be possible with enormous financial support and multilateral cooperation,” the analysis clarifies. Additionally, the OECD quantifies the annual commitment at $6.9 trillion for investments in renewables and weather-resistant infrastructure, equating to $1,000 per person on the planet per year. 

The United Nations’ Race to Zero Initiative, launched in 2020 alongside the initial stages of the health recovery, engages 1,700 companies committed to emission reductions by 2030, aiming to limit global warming to 1.5 degrees Celsius. It has provided motivation. "However, we are still far from the necessary cruising speed,” explains Peter Gassmann, head of Global ESG Strategy at PwC. 

In his opinion, this investment slowdown is primarily driven by “investors seeking returns similar to those of traditional portfolios.” However, in reality, “capital in green technology and sustainable initiatives is still in its early stages, carrying additional risks compared to mature assets.” 

While this investment atmosphere may encounter difficulties, ESG principles will endure because, as Gassmann points out, “there is no future without sustainable and measurable medium-term corporate strategies” in a world increasingly “aligned” with green investment principles. Furthermore, it is moving towards "accounting and auditing convergence” to mitigate reputational risks and attract technologically innovative investments with environmentally-focused business models that offer substantial returns.       

Morgan Stanley recognizes the current investment pause, but sees substantial opportunities ahead. They note that “Artificial Intelligence (AI) and Data Analytics are already assisting companies in achieving their ESG objectives, particularly in improving value chains.” This trend is expected to result in “greater investment appeal and risk reduction” for companies that offer comprehensive information about their ESG criteria.

Ignacio J. Domingo
Has spent most of his 30 years of professional practice analyzing geopolitical, international economic and capital market issues in Expansión and collaborating with media channels such as El Confidencial, Capital, Estrategias de Inversión and El Diario.es, among others. He received the award as a first runner-up for the Citigroup Award, which recognizes the best annual economic reporting.