Hubert Keller on Bloomberg: From innovation to mass market – investing to achieve net zero

In the race to achieve net zero, where should we invest our money?

That was the deceptively simple question for Hubert Keller, Lombard Odier’s Senior Managing Partner, at the recent “Bloomberg Invest: Strategies For Wealth Creation” conference held at Bloomberg’s European head office in London.

With concerns over recent bank failures in the US and UBS’s acquisition of Credit Suisse occupying minds, and as the world continues to be plagued by geopolitical tensions, high inflation, market volatility and the increasing impacts of climate change, leading financial thinkers gathered to discuss how investors should be putting their money to work in today’s troubled times.

For Hubert Keller, taking the stage for an interview with finance journalist Lizzy Burden, investing in the transition to a net-zero emissions economy offers a route through the storms.

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Passing inflection points

“When we look past the short-term issues, we think we are in front of a green economic revolution which could become the growth story of the next two decades,” Hubert Keller began.

For investors, he explained, it’s crucial to understand that this growth story is built on innovation, and to be able to identify where new technologies are on the path to commercialisation. “It starts with innovation, then it moves to niche markets, and then at some point there’s an inflection point that’s crossed and it moves into mass adoption. That’s when we see scale.”

“Getting past this inflection point requires three criteria, and they are always the same,” he said. “It’s about affordability; it’s about whether the new solution is more efficient than the incumbent one; and it’s about accessibility. This is the point where it gets really interesting for investors.”

“90% of the solutions to achieve the goal of halving global emissions by 2030 exist today. And most of those solutions have already gone through this inflection point – like the building blocks of widespread electrification, for example. We think that many solutions are just two to three years away from crossing these inflection points.”

Economics in the driving seat

The push for sustainability solutions to reach commercial-scale, Hubert Keller continued, is being driven by economics. And while policy has a role to play in “bringing forward these inflection points,” it is markets that will ultimately decide.

“When we look at what’s happening with electrification, for example, it’s already gone far beyond policy action. 95% of our demand for energy is concentrated around three clusters – mobility, buildings and industrial processes. In some of these clusters we are already moving towards the green solution.”

Highlighting the success story of electric vehicles (EVs) he said, “10 million EVs have been sold this year – that’s about 12% of global sales. We think in the next three years it’s going to be 30% of new car sales. There is faster and faster adoption around the world. And they are being adopted because of affordability, accessibility and efficiency.”

“This is one reason why the demand for energy is starting to become much more focussed on electricity. And the cheapest source of electricity today is solar and wind. Of all new capacity additions to the global generation capacity, 80% comes from solar and wind – it is the law of markets.”

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The business case

In response to a question on whether innovative financing is needed to cover a so-called ‘financing gap’ for the rollout of renewable energy, Hubert Keller explained that game-changing capex deployment is already underway.

“The reality is that as these green technology solutions start to scale then they attract a huge amount of corporate investment capex, because the business case is very clear. We can really see this with electrification. As a firm, we think there is going to be USD 24.5 trillion of corporate investment capex being deployed between now and 2030 to finance the electrification of the economy.”

The crucial point, he said, is that as investors, “we want to follow this capex. If you look at the tech revolution, for example, there we saw USD 3 to 3.5 trillion of capex being deployed year in year out for more than a decade. Before that, the share of earnings from tech companies was 5% in the global economy, and it went to more than 20%. When investment capex is being deployed from corporates it is because they are investing in their future earnings and the future growth of their profits. And capex is being deployed as we speak.”