Achieving the goals of the Paris Climate Accord, and "greening" the world’s capital stock, is seen as one of humanity’s greatest challenges. This report shows that a capital investment of around $100 trillion in lower-carbon infrastructure will be required for the world to comply with the Paris climate goal of limiting warming to below 2.0°C and achieving net zero emissions by 2050.

Although green investment is growing, the research highlights that more action will be required by governments, asset allocators and corporations to facilitate the transition to net zero. 

This $100 trillion represents around 15 per cent of total global investment over the next 30 years, or around 3 per cent of global GDP over the same period, the firm said in a statement. 

Corporations in the S&P 500 alone will need to spend roughly $12 trillion of green capital expenditure by 2050 to remain on course, the firm added.

The energy and utilities sectors face the largest climate transition challenges and are therefore most in need of capital to decarbonize, the research shows. Allocating over half of the green corporate investment to these sectors will be crucial in reaching 2050 targets.
 
The research forecasts a potential $20 trillion worth of stranded assets during the transition, and that will increase the longer the transition is delayed. To limit financial risk to investors, corporations must identify and account for the costs associated with scrapping these stranded assets, the firm added.
 
Shamik Dhar, chief economist at BNY Mellon Investment Management, said: “Achieving net zero by 2050 will require transformational investment, but it is attainable. Get it right and the payoff to society and investors can be substantial. Investment is just one side of the coin.” 

“Wider policy action is needed to accelerate the pace of decarbonization and there have been calls for a global carbon tax, but we think a coordinated approach is unlikely, so other incentives must be considered. Governments need to encourage and incentivize private sector investment whilst alleviating transition risks through policy levers,” he added.
 

Opportunities for investors
The firm believes that the $100 trillion of green investment may create considerable opportunities for investors across many sectors and geographies. Suppliers providing the energy and utilities industries with the means of decarbonizing may be set to reap the greatest reward, with some of the largest beneficiaries likely to be companies producing battery storage, grid infrastructure and piping for carbon capture, hydrogen and natural gas, the firm said 
 
Geographically, more than half of the $100 trillion of green investments are expected to be needed in emerging markets and nearly a quarter in China alone, the asset manager continued. 

The share of global green investment required in emerging markets in order to reach net zero targets is larger than their current share of annual global GDP. With cheaper decarbonization solutions relative to advanced economy peers, the transition in emerging markets can potentially lead to greater returns, both financially and environmentally, for impact-focused investors, the firm said.

Kristina Church, global head of responsible strategy at BNY Mellon Investment Management said: “As responsible investors and stewards of our clients' capital, we see significant value in companies with credible transition plans. Continuous engagement with the public sector and corporations is key to ensure a just transition.” 

“Divestment is a very last resort should a company fail to transition. Engagement allows for the directing of capital to the sectors and geographies that need it most. This is where the biggest transition opportunities for investors lie,” she added.

BNY Mellon Investment Management hired Fathom Consulting to provide expertise on the economics of climate change and undertake certain elements of this project. The final output reflects the efforts of both parties. The modeling framework and report conclusions were developed in collaboration, while Fathom’s proprietary climate data and tools were used to develop the sectoral risk framework presented in this report.

Results from this research study have inherent limitations and are for informational purposes only, the firm said.