The fire and floods that engulfed much of the North American and European continents this summer served as a cataclysmic, real-world illustration of the report published by the UN’s Intergovernmental Panel on Climate Change in August 2021.
“The alarm bells are deafening, and the evidence is irrefutable,” UN Secretary-General António Guterres said of the report. “Greenhouse gas emissions from fossil fuel burning and deforestation are choking our planet and putting billions of people at immediate risk. Global heating is affecting every region on Earth, with many of the changes becoming irreversible.”
But if the fallout from climate change has arrived sooner than expected, so have the solutions required to mitigate the damage. While many investors and analysts tend to focus on future technological innovations as hypothetical panaceas to our planet’s climate problems, digital technologies exist today that can drive the world significantly further down the road toward net-zero emissions.
Using the tools at hand to create a carbon-free economy
“Digitalisation” doesn’t describe a single technology or system, but is instead a catch-all term for how digital tools deployed in various sectors – from transportation and shipping to manufacturing and personal energy use – fundamentally change those sectors’ emissions reduction potential. Because the technological solutions required for digitalisation have often existed for years, the success of digitalisation largely depends on public and private stakeholders possessing the vision and resolve to enact the necessary policies.
One salient example of this important interplay between policymakers and digital technologies is energy efficiency monitoring. According to the International Energy Agency’s Net Zero by 2050 report, energy efficiency plays a key role in the decarbonisation of the global energy economy and has the potential to deliver 13 gigatons of emission reductions by 2030. Digital tools can help deliver data to key decision-makers in myriad ways, from creating a virtual model of municipal systems that identifies areas of high energy expenditure to household smart energy meters that allow governments to reward low-energy use.
While digitalisation largely relies on already-existing technology, stakeholders are sometimes slow to adopt policies that unlock the emission-reduction potential that already exist. These barriers could be government regulations, pre-existing relationships with vendors that digitalisation would disrupt, workforce training for new skills and more. While some of these challenges remain formidable, the increased urgency of climate change will likely incentivise organizations to place a greater emphasis on reducing emissions.
Future technological innovation will play an important role in creating a sustainable, net-zero global economy decades from now. But what the planet needs right now – and what can often get overlooked by investors and the media alike – are pragmatic, enterprise-oriented solutions that harness today’s technology to reduce emissions on a global scale.
While a company that installs and operates energy monitoring software in a factory lacks the panache of a private research lab working on cold fusion, the former is more important to helping the world reach the 2030 emission goals laid out by the 2015 Paris Agreement.
Digitalisation serves as an important driver for increasing energy efficiency by 4 percent each year between now and 2030 – one of the mega-trends we believe require financing. Combined with a massive increase of electric vehicles in circulation and adding more capacity for solar and wind power, an investment in energy efficiency will help the world make the systemic changes needed to hit the 2030 emissions milestone.
It also provides investors with a potential massive opportunity. The International Monetary Fund predicts that the transition to a greener global economy could create 30 million new jobs and raise global GDP by 2 percent. We can channel the entrepreneurial spirit undergirding today’s economy to help create a new, carbon-free one that literally saves the world.
The author is Pierre Abadie, group climate director at private markets investor Tikehau Capital.