Energy efficiency policies & investments

Illustrating the financial, climate, and policy relevance of a cross-asset class approach

Despite Europe drastically cutting its dependence on Russian energy imports, since 2022, European countries have spent four times as much on Russian energy imports (US$187bn) as on military aid to Ukraine^[6]. However, energy efficiency and electrification in transport (i.e electric vehicles), buildings and industry (i.e. heat pumps), could provide ~33% of a net zero scenario’s carbon reductions, support industrial competitiveness, improve energy security and create wider health benefits^[7].

With many fossil fuel companies largely continuing with their current business models, some asset owners^[8] are stating that they will increase their focus on energy demand and energy efficiency. Our report therefore serves as an investor guide to public policy developments to inform capital allocation and the use of investor influence to improve energy efficiency.

The first section of our report presents how energy efficiency is a cross asset class opportunity. The second section explains the investor implications of the updated Energy Performance in Buildings Directive while the third section focuses on the updated Energy Efficiency Directive.

The updated laws aim to double the EU’s efforts to cut energy use compared to 2007-20 when energy use fell by ~9%.

• ~11% of buildings are renovated/year but only 1% of buildings have a renovation impacting energy performance and 0.2% optimise for energy efficiency. The EU aims to double renovations: 35m by 2030 requiring EUR 275bn+/year.
• Even though energy prices have declined over the last two years, millions of Europeans cannot afford to keep their homes warm with healthy indoor environments^[9]. Buildings are thus also a social cohesion/equality policy priority.

Different asset classes as shown in Figure 1, involve different types of financial institutions, market rules/practices and regulations that have different abilities and maturities and examples of sector initiatives to support create real world change such as contributing to improving society’s energy efficiency. The shading from dark green to red, illustrates that within specific asset classes financial institutions/funds are evolving their approach to net zero and energy efficiency. All institutions can continue to improve. Figure 2 illustrates the ways in which energy efficiency are relevant to major asset classes.

SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 7: Affordable and Clean Energy
• SDG 9: Industry, Innovation, and Infrastructure
• SDG 11: Sustainable Cities and Communities
• SDG 13: Climate Action
• SDG 17: Partnerships for the Goals

The issues highlighted in the article are related to energy efficiency, electrification in transport, buildings, and industry, as well as the need to improve energy security and reduce carbon emissions. These align with the goals of affordable and clean energy (SDG 7), industry, innovation, and infrastructure (SDG 9), sustainable cities and communities (SDG 11), climate action (SDG 13), and partnerships for the goals (SDG 17).

2. What specific targets under those SDGs can be identified based on the article’s content?

• Target 7.3: By 2030, double the global rate of improvement in energy efficiency
• Target 9.4: Upgrade infrastructure and retrofit industries to make them sustainable
• Target 11.6: By 2030, reduce the adverse per capita environmental impact of cities
• Target 13.2: Integrate climate change measures into national policies, strategies, and planning
• Target 17.16: Enhance the global partnership for sustainable development

Based on the article’s content, the targets that can be identified include doubling the rate of improvement in energy efficiency (Target 7.3), upgrading infrastructure and retrofitting industries for sustainability (Target 9.4), reducing the environmental impact of cities (Target 11.6), integrating climate change measures into policies and planning (Target 13.2), and enhancing global partnerships for sustainable development (Target 17.16).

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Indicator: Percentage of buildings renovated impacting energy performance
• Indicator: Percentage of buildings optimized for energy efficiency
• Indicator: Number of renovations required by 2030
• Indicator: Amount of investment required per year for renovations
• Indicator: Number of Europeans unable to afford proper heating

The article mentions indicators that can be used to measure progress towards the identified targets, such as the percentage of buildings renovated impacting energy performance, the percentage of buildings optimized for energy efficiency, the number of renovations required by 2030, the amount of investment required per year for renovations, and the number of Europeans unable to afford proper heating.

SDGs, Targets, and Indicators Table

Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.

Source: dws.com

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