UBS energy experts analyse long term investment themes around energy transition and the opportunities it presents for investors.
• Energy demand is rising and stems from population growth and increasing global urbanization rates (especially in emerging markets).
• Demand for renewable energy is outpacing that for non-renewable because people see this as a way to reduce global warming. Meanwhile, a number of governments are also set to reduce CO2 emissions.
• Technological advancement has made renewables like solar and wind cheaper. Despite this, total transition from non-renewable energy is still unfeasible within the next decade due to its current size (annual sales of the fossil fuel sector are about $4.5 trillion) and the cost of global infrastructure replacement.
• The experts are still bullish on fossil fuel companies but only those which are readily incorporating ESG consideration, taking steps to reduce emission, and investing in renewable sectors.
Why does this matter? ESG investing and the green revolution around the world is creating major head winds and negative sentiment for the traditional energy sector. Transitioning energy companies with a mix of ESG and fossil fuel provides a good investment opportunity. The energy sector has gone from 13% weight in S&P in 2010 to 3% in 2019, but is set for a turnaround.
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