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Commentary

Zero Emissions Day

Press
21 September 2022
Today is Zero Emissions Day - an important reminder of the timely need to decarbonize and reduce greenhouse gas emissions. Our engagement and investment teams mark this day by showing key solutions and milestones companies are delivering to fight climate change. They of course focus on the oil and gas sector, but here they look at buildings and construction in particular.

Reducing methane emissions this decade is probably the single most important action the world can take to reduce the rate of global heating. Methane accounts for about 20% of global greenhouse gas emissions but is more effective than carbon dioxide at trapping heat in the atmosphere over the short term. So curbing methane emissions this decade would buy valuable time for big carbon-emitting sectors to find viable solutions.

Tackling methane emissions through engagement is not a new focus for us, but we have been able to leverage the greater awareness post-COP26 to help galvanise industry efforts. Under our Engagement Plan, we are seeking a 60-75% reduction in oil and gas operational methane emissions by 2030, from a 2015 baseline.

In 2018, we asked Occidental Petroleum to set emissions targets, including methane targets, as part of our feedback on the company’s first climate change report. We queried how climate change was factored into the Anadarko Petroleum acquisition, given the company’s growth mindset at a time when we may be reaching peak oil demand. The subsequent pandemic and US$9bn write down elevated these concerns.

In 2019, the company established initial Scope 1 and 2 emissions targets. In 2020, it became the first US oil and gas company to announce net-zero targets, including methane targets to end routine flaring by 2030, covering its entire business footprint, including Scope 3.

The development of carbon capture, utilisation and storage (CCUS) technologies was expected to offset approximately 20 million tons annually while expanding the capacity for more. We sought clarity on the risks and uncertainties associated with CCUS, which is critical for the low-carbon transition, but should not be a substitute for phasing out fossil fuels. The company emphasised its 50-year track record of CCUS and said it accounted for the added sustainability benefits when evaluating the economics. It also established additional short-term (2024) and medium-term (2032) targets, endorsed the OGMP 2.0, commissioned independent limited assurance verification for its Scope 1 and 2 emissions, and published its climate public policy positions.

We continue to engage with the company, focusing on the risks and uncertainties associated with CCUS.

When we think of solutions to climate change we tend to think of the headline acts: electric vehicles, the energy storage revolution, smart cities, the rise of renewables. But away from the main stage, there’s another act that has a big part to play. It’s not often that we think of buildings and the built environment as being the ‘rock stars’ of climate change mitigation – but that’s exactly what they are.  


Buildings, according to the IEA, represent nearly 40% of global energy-related carbon dioxide emissions. That’s considerably more than the entire transport sector (which accounts for some 23% of emissions) and more even than industry (accounting for 32%). Not only do buildings account for a significant portion of CO2 emissions, they also offer some of the most cost-effective opportunities to mitigate them. 

Our holding Itron in our Impact Opportunities Equity Fund is a global leader in energy efficiency technology, offering innovative products to optimise energy and water resource management. 

Compared to a traditional grid, an active grid – which leverages the Internet of Things (IoT) to better match supply with demand and monitor inefficiencies/outages – can reduce electricity usage by 12%. The active grid will increasingly draw focus through the energy transition, as demand for electricity rises due to vehicle and home electrification. Itron is a leader in this market. The company provides hardware and software solutions that are critical to smart and active grid management, with a product offering that is focused on improving resource efficiency. 

Inefficiency across the grid is a costly affair, both economically and environmentally. Faulty equipment wastes around 5% of electricity generated in the US, while out-of-service end points that are left connected are similarly troublesome. Itron identified that for one client, inactive metering was wasting around 456GW of electricity annually, equivalent to the yearly electricity consumption of 54,000 homes. The grid is also not particularly resilient, despite representing vital infrastructure for millions of people. It is vulnerable in the event of natural disasters, which are becoming more prevalent thanks to climate change. By allowing operators to identify faults more efficiently, the equipment produced by Itron directly improves recovery times and, in turn, saves energy. In 2019, Itron’s solutions meant 3.5m metric tonnes of CO2 emissions were avoided.

With growing rates of urbanisation and a forecast rise in global temperatures, the way we heat and cool our homes and workplaces will play an essential role in addressing climate change. Regulators have recognised this and have begun to increase pressure on companies in the real estate sector to reduce carbon emissions and to improve energy efficiency standards, particularly with reference to heating, ventilation and air-conditioning (HVAC) technology. In Europe, for instance, the EU will bring in more stringent requirements on the use of refrigerants in heating and air conditioning units by 2023/4. 

As a high-quality, fast-growing pure-player in the HVAC segment, Trane Technologies is providing solutions to the megatrend of decarbonisation. A focus on ESG/ sustainability is integral to its business strategy, its product portfolio and its culture; and this, in our view, should support value creation over the long-term.  

The company’s product portfolio includes equipment, controllers and software all designed to address the need of building owners and managers to monitor, optimise and reduce their energy consumption. The company estimates its products can influence some 45% of the total energy consumption in a building, and about 32% in a single-family home, significantly lowering energy bills and reducing greenhouse gas emissions. Separately, the company’s transport refrigeration business addresses the need to move perishable food safely, thereby reducing food waste and, indirectly, greenhouse gas emissions.

With growing rates of urbanisation and a forecast rise in global temperatures, the way we heat and cool our homes and workplaces will play an essential role in addressing climate change. Regulators have recognised this and have begun to increase pressure on companies in the real estate sector to reduce carbon emissions and to improve energy efficiency standards, particularly with reference to heating, ventilation and air-conditioning (HVAC) technology. In Europe, for instance, the EU will bring in more stringent requirements on the use of refrigerants in heating and air conditioning units by 2023/4. 

As a high-quality, fast-growing pure-player in the HVAC segment, Trane Technologies is providing solutions to the megatrend of decarbonisation. A focus on ESG/ sustainability is integral to its business strategy, its product portfolio and its culture; and this, in our view, should support value creation over the long-term.  

The company’s product portfolio includes equipment, controllers and software all designed to address the need of building owners and managers to monitor, optimise and reduce their energy consumption. The company estimates its products can influence some 45% of the total energy consumption in a building, and about 32% in a single-family home, significantly lowering energy bills and reducing greenhouse gas emissions. Separately, the company’s transport refrigeration business addresses the need to move perishable food safely, thereby reducing food waste and, indirectly, greenhouse gas emissions.

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