Gravis hosted its inaugural 'Gravis Talks' roundtable event on 15th November 2023. Keynote speaker Tom Delay from The Carbon Trust, gave his personal views on 'the good, the bad, and the opportunities for net zero'.

As an introduction to the subject, Tom Delay began with his views on the impact of the industrial revolution – a time when labour was expensive but the resources being used to build our economy were both abundant and cheap. As we moved to make labour more efficient, we inadvertently caused climate change. Now we need to focus on the more efficient use of the resources we have left and limit any further damage to our environment.

The good news is that almost everything we use today can be used more efficiently, so we can reduce the impact of climate change. There is, in fact, a huge opportunity to do things differently and countries representing 90% of the world’s GDP have signed up to commitments to achieve net zero emissions.

The bad news is that it is very hard to decarbonise and while progress towards net zero has been made, it has been slow.

Delay pointed first to the fact that the pace of change required to achieve net zero in the timescales agreed needs to be far quicker than the natural cycles of development. From capital to technology, things need to move faster than the market would normally accept, which means taking on risk outside of the norm.

He also said that “lock-in” of both assets and behaviours has been a barrier. For example, if you have an existing asset that needs to depreciate fully to provide an economic return, then the case for doing anything other than running it through to the end of its life is very weak. What’s more, once fully depreciated, it can undermine the business case for new, more efficient equipment.

Another barrier highlighted by Delay was that new technologies and new markets often don’t have natural owner. For example, offshore wind should be the domain of oil and gas companies which have the expertise to build and operate assets offshore, and the balance sheets to support the capital investment required. This isn’t the case however, as Investing in renewables may have increased their profitability, but these companies feared the markets would then consider them as power companies, and potentially destroy shareholder value.

The final hurdle is that getting everyone to agree on a course of action is hard! Governments, businesses, and societies all have their own agendas.

While the challenges should not be underplayed, Delay emphasised that the private sector could do the heavy lifting in the transition to net zero. Why? Because there is a long-term financial incentive to do so – an incentive that will help protect and support the profitability of businesses.

Organisations can start by optimising the steps they have already taken. They then need to transform how they operate and be absolutely transparent about their progress. Above all, pathways to net zero need to be credible and have a sense of urgency.

The transition to net zero will require the largest transformation of infrastructure in recent history. In fact, it is estimated that spending on physical assets needs to reach around $275 trillion by 2050* to enable net zero to be achieved. A combination of government policy and support mechanisms, and corporate or individual CSR commitments will support the economics of these investment opportunities.

And while many actions on the road to reducing emissions are fraught with potential adverse impacts which need to be identified, managed, and reduced wherever possible, Gravis believes these should be disclosed and best practice shared. Collective action between investors and trade bodies will have a greater potential impact than individual investors working alone and will be crucial in driving market-wide change in best practices.

Gravis has an established track record as an early investor in a number of areas that will help the transition to net zero. Amongst other milestones, it was the first significant backer of a domestic rooftop solar project in 2011, for example, and lent to one of the first waste wood power stations developed in the UK a couple of years later. Gravis has also invested in an early mover in the UK battery storage market and was an early financial investor in offshore wind. More recently, it lent to only the second deep geothermal well project developed in the UK at the Eden Project. Investment of this nature continues to today, with Gravis looking at projects in natural capital, sequestration, carbon capture and storage, sustainable food production, resource use, transport and energy transition.

You can find out more about Gravis’ proposed new Net Zero Capital fund here.

*Source: McKinsey Global Institute, 29 January 2022: What it will cost to get to net-zero | McKinsey

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