Investing in a changing climate

Allianz: Let's dive straight into one the critical points you make – that achieving net zero is not enough. Could you elaborate on this?

Ludovic Subran: Our research indicates that aiming for net zero emissions by 2050 is insufficient to keep global warming under the 1.5°C target. The reality is we've delayed decisive action for too long. Now, we must not only reach net zero but also move into negative-emissions territory, actively removing CO2 from the atmosphere. Just last week, industry and environmental associations in Germany came out in favor of carbon capture and storage technology for sectors where emissions cannot be avoided.

Markus Zimmer: That's right. The current national commitments and envisioned investments fall short of what's truly needed. We aim to clarify this complex scenario, guiding policymakers and investors on where to focus their efforts for maximum impact.

Allianz: You mention the current state of global warming and the challenges in forming a unified international response. Could you expand on that?

Ludovic Subran: We're at a point where the impacts of climate change are undeniable, yet global responses remain fragmented. Different political and economic interests have prevented a cohesive strategy. This poses both a challenge and an opportunity for investors, which we discuss in depth.

Allianz: The urgency is becoming acute. James Hanson, the former NASA scientist credited for alerting the world to the dangers of climate change in the 1980s, recently said that the 1.5°C internationally agreed threshold to prevent the Earth from spiraling into a new superheated era would be “passed for all practical purposes” during 2024.

Markus Zimmer: Indeed, we are likely to pass 1.5°C in 2024, but we consider it to be climate change only after a string of several such years exceeds this limit. This is expected to occur sometime in the 2030s, but the risk is accelerating, which makes our work even more timely.

Allianz: How do you propose navigating the many initiatives and technologies emerging in the fight against climate change?

Ludovic Subran: We provide a sector-by-sector analysis, examining six critical areas of the economy: energy, utilities, transportation, industry, buildings and agriculture. For each sector, we assess the current state of decarbonization and identify the most promising areas and technologies for investment.

Markus Zimmer: And it's not just about identifying the right technologies; it's also about understanding their stage of development and real-world applicability. The necessary solutions are all available today, but some still need to get cheaper. In most cases that is simply a matter of scaling up the production which results in cost savings from larger quantities and innovation through learning-by-doing. Our goal is to offer a clear-eyed view of the decarbonization path and its investment opportunities.

Allianz: Your work breaks down a lot of complex information. What's your approach to making such a dense topic accessible to investors?
Ludovic Subran: We wanted to make the information as digestible as a modern smartphone's interface. There's a lot of complexity behind the screen, but what the user interacts with is simple and intuitive. We aimed to do the same – hide the complexity but provide actionable insights for investors and key decision-makers.

Allianz: Yes, that is one of the distinguishing elements of your work. One of the others is the structure and how you trail energy through the six sectors of the economy. Energy production and consumption are so central to discussions on climate change. 

Ludovic Subran: The energy sector is pivotal in the climate change narrative. We begin by tracing the journey of energy from its production to consumption. We dissect how each step in this trail contributes to greenhouse gas emissions and what can be done to mitigate this.

Markus Zimmer: It's more than just pointing out the problems. We dive into the potential solutions – renewable energy sources, advancements in energy efficiency, and innovative technologies like carbon capture and storage.

Allianz: Can you give examples of how you explore these solutions?

Ludovic Subran: For instance, we look at the shift from fossil fuels to renewables. It's not just about advocating for more solar panels and wind turbines; it's also about understanding the challenges and opportunities in scaling up these technologies, the investment required and the potential return on these investments.

Markus Zimmer: Exactly. We also delve into less talked about areas like the role of energy efficiency in industries and buildings. This includes exploring new materials and construction techniques that significantly reduce energy consumption.

Allianz: How does you address the complexities of transitioning to a low-carbon energy system?

Ludovic Subran: We acknowledge that this transition isn't straightforward. There are technological, economic, and political hurdles. We lay out these complexities straightforwardly, offering insights into how they can be navigated, particularly by investors and policymakers.

Markus Zimmer: And crucially, we discuss the timeline of these transitions. It's not just about the end goal but understanding the milestones along the way – what's achievable in the short versus the long term, and how each step moves us closer to a sustainable energy future.

Alianz: While energy is a global issue, the solutions often need to be localized. Can you explain how you suggest tackling this?

Markus Zimmer: We take a global view but also dive into regional specifics. Different regions have different energy needs, resources, and challenges. Understanding this is key to effective investment and policy-making.

Ludovic Subran: For example, the path for energy transition in Europe differs from that in Africa or Asia. We discuss these regional nuances, highlighting opportunities tailored to each area's unique energy landscape.

Allianz: You mentioned Africa. There is a special chapter on that continent. No other region receives such a prominent focus. Why?

Markus Zimmer: Africa is at a unique crossroads. It's one of the continents most affected by climate change, it’s likely to see a rise in greenhouse gas emissions, yet it holds immense potential for aiding the global energy transition and economic growth. Understanding Africa's role and potential is crucial for global climate strategies.

Ludovic Subran: The chapter on Africa provides insight into how the continent can be a key player in solving not just its own energy and economic challenges but also those of the West and the broader world. It is a clear win-win when we find a way to truly cooperate on this.

Allianz: It sounds like your book is a vital tool for anyone involved in climate action and investment. What do you hope readers will take away from it?

Ludovic Subran: We hope readers, whether they are investors, professionals, or policymakers, find a clear path through the complex landscape of climate change mitigation and adaptation strategies. The book is designed to be a concise guide to understanding where we stand in the battle against global warming and where the most effective interventions lie.

Markus Zimmer: Yes, and beyond understanding, we aim to inspire action. We make clear that there is nothing we need to wait for. The challenge is immense, but so are the opportunities for those ready to invest in a sustainable, carbon-negative future.

Allianz: It sounds like you provide a comprehensive and practical roadmap for those looking to invest in the energy sector while combating climate change. Thank you, Ludovic and Markus, for sharing these insights.

Ludovic Subran & Markus Zimmer: Thank you for having us. We hope our book aids in the crucial decisions ahead in the energy sector and beyond.

Navigating Challenges and Opportunities is available from Springer
Ludovic Subran
Markus Zimmer
Investing in a Changing Climate
Ludovic Subran
Ludovic Subran, as Chief Economist at Allianz SE, Europe’s largest insurer and investor, has a diverse background in economics, including roles in the French Ministry of Finance, the United Nations and the World Bank. He's also a Young Global Leader of the World Economic Forum and a David Rockefeller Fellow of the Trilateral Commission.
Markus Zimmer
Markus Zimmer, the Senior Economist for Sustainability at Allianz Research, specializes in climate economic research, connecting business activities with global climate science. He previously worked at Germany’s Ifo Institute and contributes to the Net-Zero Asset Owner Alliance and the Glasgow Financial Alliance for Net Zero.
Die Allianz Gruppe zählt zu den weltweit führenden Versicherern und Asset Managern und betreut rund 125 Millionen* Privat- und Unternehmenskunden in knapp 70 Ländern. Versicherungskunden der Allianz nutzen ein breites Angebot von der Sach-, Lebens- und Krankenversicherung über Assistance-Dienstleistungen und Kreditversicherung bis hin zur Industrieversicherung. Die Allianz ist einer der weltweit größten Investoren und betreut im Auftrag ihrer Versicherungskunden ein Investmentportfolio von etwa 746 Milliarden Euro**. Zudem verwalten unsere Asset Manager PIMCO und Allianz Global Investors etwa 1,8 Billionen Euro** für Dritte. Mit unserer systematischen Integration von ökologischen und sozialen Kriterien in unsere Geschäftsprozesse und Investitionsentscheidungen sind wir unter den führenden Versicherern im Dow Jones Sustainability Index. 2023 erwirtschafteten über 157.000 Mitarbeiter für den Konzern einen Umsatz von 161,7 Milliarden Euro und erzielten ein operatives Ergebnis von 14,7 Milliarden Euro.
* Einschließlich nicht konsolidierter Einheiten mit Allianz Kunden.
** Stand: 31. März 2024
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