Positive Tipping Points to Boost the Transition

    Stockholm (NordSIP) – Tipping points are normally associated with the very worst-case climate scenarios, for instance the potential weakening of the Atlantic Meridional Overturning Circulation (AMOC) that could seriously disrupt established European weather patterns.  The same term is used in a far more optimistic light in a new report published by sustainability consultancy firm Systemiq that highlights key areas that could be the catalyst for an accelerated transition to a low-carbon economy.

    The new report, titled the Breakthrough Effect, was produced by Systemiq in partnership with the University of Exeter, the Bezos Earth Fund and Simon Sharpe, Director of Economics at the Climate Champions Team and Senior Fellow at the World Resources Institute.  Systemiq identifies three so-called “super-leverage points” that could have an exponential effect on the transition in areas of the economy that account for 70% of global greenhouse gas (GHG) emissions.  Earlier this month NordSIP hosted a video discussion on transition investing, which many sustainability-minded investors are interested in exploring as a theme.  The Systemiq report helps put some concrete transition investment focus areas on the table.

    EVs need a boost

    The first “tipping point” sector is road transport, which according to the team behind the report is at a stage in its development where a “gentle nudge” in terms of government policies, infrastructure investment and falling costs could accelerate the electrification not just of the whole sector but other areas of the economy that could benefit from the same technological advances.  Systemiq calls this effect a “tipping cascade,” whereby rapid development in one sector can reverberate across the economy.  For instance battery storage within buildings can boost the employment of renewables in the electricity supply grid.  The report states that battery production would likely be boosted tenfold once electric vehicle (EV) account for at least 60% of total sales.

    Green ammonia

    Much lower in the public consciousness than EVs is the use of ammonia produced with fossil fuels in agricultural fertilisers, which is the second potential tipping point highlighted in the report.  Governments mandating the use of minimum levels in fertiliser production of ammonia manufactured using green hydrogen would help to significantly boost the deployment of renewables-powered electrolysers used in hydrogen production.  Systemiq highlights the double effect of this in reducing fossil fuel use in agriculture while creating more green hydrogen production capacity that can also benefit other sectors such as shipping (where both hydrogen and ammonia are potential alternative fuels) and steel manufacturing.

    Plant-based meat substitutes

    The third tipping point involves alternative protein.  The knock-on effects of reducing or eliminating meat production are wide-ranging in terms of land use and GHG emissions.  The report advocates the powerful effect of the public sector in terms of procurement and investment in R&D.  The key to success depends on meat and alternative protein reaching parity not just on cost but also – perhaps crucially – on taste.  The estimated 7-15% reduction in land use for livestock farming would help reduce incentives for land conversion through deforestation and reduce harmful methane emissions from cattle.

    Systemiq points out that these three areas are not the only potential positive tipping points, with other ones waiting to be exploited in the building sector for example.  The common success factors in these tipping points are affordability, attractiveness and accessibility.  By investing in these focus sectors and reinforcing the related positive feedback loops, the converse negative effects apply to the incumbent solutions, thus accelerating their decline.  The concept of these tipping points is encouraging, although as Systemiq points out in the report more research is needed in certain areas to obtain a precise understanding of their potential.  For instance, the raw material needs of sustainable battery production remain unresolved and there are still doubts about the use of ammonia as a shipping fuel.  The report makes excellent reading for institutional asset owners looking to allocate to transition investing strategies and thereby benefit from growth sectors while “tipping” the economy in a positive direction.

    Image courtesy of Gerd Altmann from Pixabay
    Richard Tyszkiewicz
    Richard Tyszkiewicz
    Richard has over 30 years’ experience in the international investment industry. He has worked closely with major Nordic investors on consultancy projects, focusing on the evaluation of external asset managers. While doing so, Richard built up a strong practical understanding of the challenges faced by institutional investors seeking to integrate ESG into their portfolios. Richard has an MA degree in Management and Spanish from St Andrews University, and sustainability qualifications from Cambridge University, PRI and the CFA Institute.

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