Top 9 Investment Trends to Watch in 2022 Part 2 – Decarbonisation

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Today, we continue with our top trends for 2022 as part of our ongoing series, “Our Top Nine Investment Trends to Watch in 2022”

In this series we are going to cover our top 9 investment ideas:

1. The great lithium disconnect
2. Decarbonisation — green switch activated
3. The future of payments
4. Quantum computing and Moore’s Law on steroids
5. Connected devices and memory
6. Decentralised finance — an ‘Amazon-in-1994’ moment
7. The influential ‘I’s
8. Watch out for gold
9. Stocks – Mind the lofty valuations

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And this time, we’re talking about…

Trend #2 Decarbonisation — green switch activated

Lithium is a sub-theme of something wider — decarbonisation.

 

Decarbonisation refers to the reduction of CO2 emissions stemming from human activity, with the eventual aim of eliminating CO2 emissions altogether.

Getting to a net-zero target requires shifting from fossil fuels to alternative energy sources — including lithium but many more besides.

BlackRock, the behemoth asset manager, named decarbonisation one of the key trends in its 2022 global outlook.

BlackRock said that

navigating net zero is not just a long-term story — it’s a now story. The global transition to a more sustainable world will require a massive retooling of economies, in our view.

Now, sometimes a great way to analyse a topic is by paying attention to incentives and rational self-interest.

Businesses aren’t charities. We can glean important market signals from what businesses are doing in the pursuit of self-interest.

Let’s consider old hands Woodside, the historied oil and gas producer, and Fortescue, the iron ore giant.

In December 2021, Woodside CEO Meg O’Neill pledged to invest $US5 billion in emerging new energy markets by 2030 as Woodside prepares for the energy transition.

O’Neill told an investor briefing:

We expect LNG to remain an important part of the energy mix in our region for decades to come, both as a lower-carbon source of fuel for coal-dependent countries and as convenient firming capacity for renewables.

But our significant investment target in new energy is aimed at positioning Woodside as an early mover in this evolving market and supporting the decarbonisation goals of our customers.

We expect that in the mid-2020s the transition to new energy will be underway, including the start-up of the first of our own projects.

Woodside’s planned investments will include hydrogen and solar thermal power.

Woodside isn’t the only big player seeing where the future’s headed and adjusting accordingly.

Fortescue is also positioning for the switch to green energy.

Fortescue now sees itself as more than just a resources business.

In a December 2021 market update, Fortescue said it was transitioning from a ‘pure resources company to a vertically integrated green energy and resources group’.

And FMG isn’t the only iron ore giant branching out.

In December 2021, Rio Tinto paid $825 million to acquire the Rincon Mining lithium project in Argentina.

RIO said the acquisition showed its ‘commitment to build its battery materials business and strengthen its portfolio for the global energy transition’.

Decarbonisation, incidentally, is contributing to another trend we’ll discuss more later.

A bit about us — Fat Tail Investment Research

While themes and trends can come and go, one thing that doesn’t go out of fashion in the investing world is insightful analysis.

Information is the crucial ingredient in markets.

But information alone isn’t enough.

It’s the rational analysis of the information that separates a sound idea from a weak one.

Here at Fat Tail, our editors pride themselves on providing valuable insight by applying their industry experience and knowledge.

At Fat Tail, we value differences.

Disagreement isn’t censured but encouraged.

And we find our readers appreciate the range of thought and ideas of our editors.

At Fat Tail, we have bulls, we have bears, we have crypto advocates, and gold bugs.

At the heart of it, though, we have a team dedicated to the free exchange of ideas. Reason trumps agenda here.

About Kiryll Prakapenka

Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…

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