“It is important not to view the transition as only onerous; the required economic transformation will not only create immediate economic opportunities but also open up the prospect of a fundamentally transformed global economy with lower energy costs and numerous other benefits.”- Mckinsey Report, The Net Zero Transition.
The internet universe and netizens have raged in a vicious debate over the past several years about the impact of climate change and, thus, the “resources” that governments worldwide have committed to reaching a carbon-neutral society over the next 27 years.
The ambitious Net Zero targets would entail trillions of dollars of spending and, thus, will open a plethora of opportunities for various companies. Various sectors will benefit immensely, and millions of jobs will be created to meet the COP 26 goals.
The groundwork for the Net Zero Transition was laid in 2017 with the formation of the Network For Greening The Financial System (NGFS).
NGFS is a nodal agency that boosts 114 central banks and financial supervisors, paving the roadmap for various CBs to finance the mega transition.
You will be wondering why such a large organisation is required to oversee the financing?
Well, folks, the reason is the staggering amount of money required to achieve the Net Zero 2050 target.
At its peak in the next few years, the annual spending will reach a whopping 8.8% of the GDP from the current 6.8%. This will also mean higher fiscal deficits for governments worldwide as subsidies for the transition will be a significant portion of the government budget.
While market participants have only focussed on renewables and EVs, there is a whole host of sectors to explore that will likely benefit from the accelerated spending by governments globally.
The astronomical spending will be used for creating physical assets for energy and land use systems.
As per estimates, governments will spend almost double ($3.5 trillion more annually) on low-emission assets and enabling infrastructure on what they are spending today.
The mind-boggling fact is that while many new companies with billions of dollars of market cap will emerge, it will become unviable for many companies to operate, thus eroding shareholders’ wealth if they don’t diversify appropriately.
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The three biggest sectors, which will witness 70% of the total $275 trillion of spending, are unsurprisingly emitting the highest CO2 emissions :
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