Investing sustainably

Five sectors for long-term green growth in 2024

13 November 2023

With an uncertain near-term, investors can look beyond current markets to spot growth opportunities in sectors that will have to be transformed to achieve net zero.

By Damian Payiatakis, London UK, Head of Sustainable & Impact Investing

Please note: This article is designed to be thought leadership content, to offer big picture views and analysis of interesting issues and trends that matter to our clients and the world in which we live. It is not designed to be taken as expert advice, investment advice or a recommendation, and any reference to specific companies is therefore not an opinion as to their present or future value or broader ESG credentials. Reliance upon any of the information in this article is at the sole discretion of the reader. Some of the views and issues discussed in this article may derive from third-party research or data which is relied upon by Barclays Private Bank and may not have been validated. Such research and data are made available as additional information for the reader where appropriate.

Key points

  • Navigating the markets in 2024 may be challenging. Contradictory geopolitical, economic and inflation pressures are creating uncertain and choppy waters
  • Issues such as climate breakdown and biodiversity loss will be critical, global challenges not just in 2024; but for decades to come
  • Given the scale of the challenges that lie ahead, the underlying story is consistent – long-term growth markets are emerging for well-run companies with effective solutions
  • Looking at 2024, positioning portfolios to protect and grow a family’s wealth, while hoping to influence tomorrow, has rarely seemed so vital.

Navigating the markets in 2024 may be challenging. Contradictory geopolitical, economic and inflation pressures are creating uncertain and choppy waters.

Beneath the surface, though, there are deeper currents of social and environmental problems. Issues such as climate breakdown and biodiversity loss will be critical, global challenges not just in 2024; but for decades to come.  

Such structural trends can act as a longer-term beacon to inform your investment decisions today. This shifts the question from simply “To which asset classes do I allocate today for potential returns?” to “How can I protect and grow my family’s portfolio while trying to influence tomorrow?”. 

This article looks to the world as it might be in 2030. Five key sectors are highlighted below with reasons why they may need to grow substantially over the next seven years to address the environmental challenges being faced now. 

Charting the world in 2030

Investors wanting to plot a course of potential sustainable investments might first want to contemplate what the world might look like in 2030.  

Climate scenarios can provide diverse narratives of key milestones in coming years and show the path a net-zero transition might take. The Task Force for Climate-related Financial Disclosures explains climate scenarios as “a plausible description of how the future may develop based on a coherent and internally consistent set of assumptions about key driving forces (such as the rate of technological change and prices) and relationships”1

While imperfect and approximate, scenarios can help to inform investment decisions and strategies. Importantly, they do not predict what will happen, but what would need to happen to reach a particular moment in time.  

In this case, potential queries might be: In 2030, what would our world need to look like for the 1.5C ambition of the Paris Agreement to be within reach? By then, how could global emissions be cut by 45%2? What milestones of growth or reduction would be needed? For key industries and sectors, what achievements are needed? 

Reviewing the climate scenarios across various specialist organisations3 helps to provide answers to these questions as well as to identify the key areas of consensus. While specific figures or calculations might vary, overall, they present a collective narrative of the world at 2030 on a 1.5 degree pathway. From there, investors can plot back to the present day to identify where opportunities could lie. 

Five trends from the analysis, with various entry points for investors, are worth highlighting. Given the scale of the challenges that lie ahead, the underlying story is consistent – long-term growth markets are emerging for well-run companies with effective solutions to the global challenge of climate change. 

1. Scaling renewables capacity  

Producing energy without creating any destructive greenhouse gas emissions is critical to mitigate climate change successfully. Complicating the outlook is that attempts to cut greenhouse gases will occur at a time when global energy demand will continue to grow4. To be on course to limit temperature rise to a 1.5C increase above pre-industrial levels, between 65-92% of electricity generation should be from zero-carbon sources by 20305

Therefore, an increasing proportion of renewables will be at the core of this transition, with installed capacity of solar and wind power needing to triple by 20306. Despite persisting issues around permitting, supply-chain difficulties and grid integration, these “traditional” renewables are cost-effective already and rapidly deployable7.  

This economic argument is why scenarios show, for example, the solar industry is preparing for over 1,000 gigawatt (GW) of sales by 2030, which would exceed most scenario stretch targets for the necessary net-zero trajectory8.

Renewables are one sector with both mature and emerging opportunities for investors. Both public and private companies, as well as infrastructure funds, are developing and managing wind and solar installations at scale. At the same time, businesses within supply chains continue to make key efficiency improvements in components. Beyond these, new alternative renewables are popping up, such as wave, geothermal and hydrogen power which are shifting from prototype phases to commercialisation.  

2. Revitalising the grid

Energy grids around the world will need to transform profoundly to enable the shift to zero-carbon energy sources.  

Grids will need more flexibility to adapt to changing nature and sources of production, to manage inherent variability, and to match demand and supply across different timeframes. Upgrading transmission and distribution systems would require more than tripling the recent annual investment – from $260 billion in 2020 to $820 billion in 20309

Initiating this work is urgent, given the long lead times for modernising and extending grids. Also, the scale of the challenge is immense. Over 80 million kilometres of power lines – equivalent to the existing global grid network – will need to be added or replaced by 2040 to meet current climate aims10.  

The growth and disruption of electricity grids creates an unusual ‘barbell’ of traditional and innovation entry points. First, companies operating, upgrading and servicing, as well as key component manufacturers, will be supported by core market growth. At the same time, companies with new technologies for smart-grids, energy-trading or demand-response systems will enable grids to be more flexible and resilient as underlying supply and demand changes.

3. Generating new energy storage 

Energy storage will be needed to meet the shift in the nature of energy demand and supply. It can take different forms, sizes, and technologies – from providing grid flexibility and resilience to powering vehicles such as bicycles, cars or airplanes. 

At the level of a grid, storage provides the needed flexibility and security when renewables are not producing energy or for peaks in demand. For instance, 2023 will be another record year for energy storage capacity, with an expected 42GW added11. In the following seven years, to 2030, new storage added each year is expected to grow at a 27% compound annual growth rate, meaning 110GW of fresh storage each year12

In other key sectors being electrified, such as transport or industry, batteries will be a critical component. For example, to meet needs solely for electric vehicles in 2030, annual battery production would need to grow from around 160 GWh in 2020 to 6,000 GWh in 203013.  

Investors seeking to support this transition can find opportunities across the value chain. This could be in companies that provide critical input materials and metals, those that manufacture the storage systems, those which integrate and operate these systems, or those which look at end-of-use services such as component recycling. 

4. Renovating our buildings  

Buildings will need to be run more efficiently with a different approach for how they are powered, heated and cooled. Based on recent estimates, buildings and building construction sectors produce over one-third of global final energy consumption, and nearly 40% of total direct and indirect CO2 emissions14

To meet net zero ambitions, buildings construction and retrofit will need new materials, techniques and technologies to be zero-carbon ready. By 2030, this would mean 100% of new builds being zero-carbon ready, from less than 1% in 2022; and retrofitting 20% of existing buildings compared with under 5% in 202215.  

Perhaps most notably, space heating will need to be driven by heat pumps. Capacity of this form of heating will need to triple to 3000 GW16, with roughly 90 million such pumps sold this decade17. This will require developing new manufacturing and installation capacity at significant scale supported by governmental policy, regulations and financial support. 

For investors, the net-zero journey for buildings has various entry points of physical and digital elements, as well as servicing. Sub-sectors, such as energy generation and storage, construction techniques and building materials, especially insulation, steel and cement, will be particularly relevant for new builds. Simultaneously, with increasingly digital reliance, software for building management, energy efficiency/carbon management and construction will be required to manage decarbonisation.  

5. Nature-based solutions

Managing, preserving and restoring nature and biodiversity has intrinsic benefits while also playing a critical role in mitigating climate change. Nature already serves as a carbon-sink, absorbing roughly 50% of carbon emissions18. Supporting these natural processes can help to protect existing systems and sequester more. 

Funding nature-based solutions (NbS) is a nascent but rapidly growing field, being used to deliver climate mitigation, as explained previously in How to invest “in” our planet. NbS are “actions to protect, sustainably manage, and restore natural or modified ecosystems, that address societal challenges effectively and adaptively, simultaneously providing human well-being and biodiversity benefits”19.

Implementing NbS across various land and water ecosystems by 2030 could reduce and/or remove between 5-12 gigatons of additional greenhouse gases per year20. For context, this would close nearly half of the current 2030 emissions gap (the difference between the amount of greenhouse gases that should be emitted in 2030 to meet the Paris Agreement goals and the amount of emissions currently projected to be emitted)21.  

For investors, opportunities exist across three broad response options:

  1. protecting existing ecosystems from loss and degradation,
  2. managing working ecosystems more sustainably, and
  3. restoring areas that have been degraded.

Moreover, they exist around the world in ecosystems ranging from forests, grasslands and agricultural lands, wetlands and peatlands, or coasts and oceans. 

Start today for benefits tomorrow 

A common theme emerges when reviewing the sectors that are likely to be most affected – they will need significant disruption and growth to arrive at a 2030 milestone on a 1.5C pathway. 

In fact, addressing climate change requires a substantial systems-wide transformation across the economy. The five sectors covered are just a starting point for such opportunities. Others, such as cement, steel, ammonia, transport, shipping, aviation, hydrogen, plastics, waste and energy efficiency will also need to be changed. Using energy transition as a beacon can help in the current short-term volatility and uncertainty, and point to potential upside in longer-term opportunities. 

However, while this transition is a structural trend, not every boat will be carried equally forward by these currents. Countries, and industries, will shift at different rates, in part dictated by political, regulatory, fiscal and societal circumstances.  

In considering how to boost a portfolio’s contribution to a future sustainable world, investors still have to select high-quality, well-run companies, highlighting the importance of incorporating environmental, social and governance (ESG) considerations into financial analysis. In the end, asset class allocation and selection remain critical. 

But the potential and urgency exist. Unfortunately, as the United Nation’s global stocktake points out, continuing on our current course suggests that global warming would exceed the 1.5C target22

Being well into the current decade already, 2030 will arrive sooner than we likely expect. Looking at 2024, positioning portfolios to protect and grow a family’s wealth while hoping to influence tomorrow has rarely seemed so vital.

Outlook 2024

What’s in store for investors in 2024? Despite lingering uncertainty and volatility, find out why it’s not all doom and gloom.