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The Challenge to Investors

Climate Change and a Slower Energy Transition

Challenge Overview

In this video, Inigo Fraser-Jenkins discusses why climate change and a slower energy transition is one of the challenges identified in The Book 2025 Edition.

The ongoing energy transition has the potential to change the outlook for growth and inflation.

We believe that the energy transition will take longer than investors currently assume. The political and social fallout from trying to change behavior enough to achieve net zero by 2050 will prove too challenging.

It has also been accepted for a long time that emerging economies’ power demand would have to rise to improve the standard of living for the very poorest people. The hope was for some reduction in power demand for developed countries to counter that increase. However, the extra power demand from AI data centers will soon be equivalent to Japan’s total power usage.

The consequences of this issue on economic growth will likely be much more uncertainty about growth rates. The impact on inflation is complicated, with arguments in either direction, but it seems reasonable that we’ll see a greater number of extreme weather events. This implies that inflation rates will vary much more than they have in the past, and investors models must account for this.

Line graph with time on the X-axis and global CO2 emissions on the Y-axis.

Historical analysis does not guarantee future results.
As of May 24, 2022
Source: Intergovernmental Panel on Climate Change (IPCC), “Summary for Policymakers,” in Global Warming of 1.5°C, ed. Valérie Masson-Delmotte et al. (Cambridge University Press, 2018): 3-24; and AB

What Is The Book?

The Book is an annual collection of thought-provoking strategic research and thought leadership from AB’s Institutional Solutions team. With a long history of taking on asset owners’ most pressing issues, the team zeroes in on themes and trends that will shape the macro, market and investment-industry landscape over the medium to long term. The team have been publishing Books on the strategic outlook for a decade.
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Explore the 2025 Edition

 


Webcast Replay: Exploring The Book 2025 Edition

Recorded Tuesday 24 June

Hear Inigo Fraser Jenkins and Alla Harmsworth as they discuss the five challenges identified in the latest edition of The Book, and the responses they are seeing for investors.

LISTEN NOW

Explore Other Challenges from The Book

Debt Burdens

The government debt burden across G7 economies has returned to its lofty heights at the end of WWII, mainly to keep consumers happy.

The cost of servicing that debt is growing, and letting inflation run hotter might be the easiest political way out of the problem.

EXPLORE TOPIC
Artificial Intelligence

It’s hoped that AI will unleash a wave of productivity to counter lower economic growth. But it also brings big questions, including what the future of democracy holds and the meaning of money. These types of risks don’t tend to show up in return forecasts.

EXPLORE TOPIC
Higher Inflation

The future likely holds higher inflation, so investors will need to put more weight on maintaining purchasing power.

This point is highly relevant, given questions about long-term public-debt sustainability and the temptation to use inflation as a relief valve.

EXPLORE TOPIC
Geopolitics

Markets struggle to price the risks from geopolitics, adding another layer of uncertainty to investment plans. With geopolitical dynamics shifting, investors must take a broader view of potential future scenarios.

EXPLORE TOPIC

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