Investment in the green energy transition will charge ahead in 2022 and beyond, with different implications for key commodities, countries, and sustainable finance.
Barclays recently released a report, Mining the green transition, which assessed five key metals: copper, lithium, aluminium, nickel and cobalt (CLANCs). The report noted that the global green transition is estimated to require US$6-10 trillion in investment in alternative energy technologies over the next decade to reach net zero aspirations, based on IMF findings.
These investments will involve technologies such as solar panels, wind turbines, upgraded transmission systems, batteries that require the CLANCs.
The Barclays report focused on emerging markets, but also noted that Australia is a key market for some of these commodities, citing Australia's leading role in lithium, "with around 24.6% of global exports of lithium, mainly exported to China" as well as its reserves in nickel and cobalt, "offering great potential for broadly untapped resources."
The report said that mining and extraction has environmental risks, and also pointed out that lithium in particular is heavily reliant on water resources, citing that 2 million litres of water are needed to produce one tonne of lithium, a particular challenge for producers such as Australia and Chile.
Meanwhile, Nordic corporate banking group SEB predicts that global investment in renewable energy is expected to jump 25% in 2022, breaking with "a decade of stagnation."
SEB also forecasts that global sustainable financing transactions will reach a total of between USD 2.3 trillion and USD 2.6 trillion next year, driven mainly by strong growth in green bond issuance.
"After a decade in which clean energy investment was capped at USD 300 billion, we expect a jump to close to USD 400 billion in 2022 as governments start to spend more on infrastructure," said SEB head of research, climate and sustainable finance Thomas Thygesen. "We see upside to that estimate as companies faced with sky-high energy bills may see the possibility to offset that cost by engaging in now extremely profitable investments in de-centralised renewable energy supplies."
SEB believes that the energy crisis currently hitting Europe and Asia will be a strong driver behind this increased investment.
SEB predicts that the main drivers of the green bond market in 2022 will be corporates in the US, Europe, and Asia, as well as supranational institutions and sovereigns in Europe, including the EU.
SEB added that sustainability bonds will also take off in 2022, with their baseline scenario predicting that new issuance of sustainability bonds will increase 20% to less than US$220 billion in 2022 with a potential of a 36% increase to around US$245 billion under a more optimistic green growth scenario.
SEB believes the growth in sustainability bonds next year will be spurred by corporates and financial institutions in Asia, North America, and Europe, and in the Green Growth Scenario also by sovereigns, supranational institutions, and agencies.
"While we don't expect another doubling of the market like we saw in 2021, we are still very confident that the exponential growth of sustainable finance is set to continue in 2022," says SEB adviser at climate and sustainable finance Gregor Vulturius. "In particular, we forecast that sustainable-themed bonds will continue to grow strongly next year, with new issuance of green, social, sustainability and sustainability-linked bonds increasing by between 35 and 53%."
Meanwhile, Westpac issued statistics predicting to that the ESG debt market could grow to US$11 trillion globally by 20245, while ESG ETF inflows could surpass US$500 million.
Australia is continuing to "pivot" towards a sustainable finance, Westpac said, saying that issuance of sustainability linked loans more than doubled in 2021.