Towards a net zero carbon strategy for investors

Out-Law News | 08 Apr 2021 | 12:12 pm | 2 min. read

Only 17% of investors have set themselves a zero-carbon objective, according to a study conducted by the asset management company Robeco.

The firm predicts, though, that 52% of investors will have such an objective within five years. One expert said that green hydrogen could become an attractive zero carbon investment in the future.

The study found that 42% of investors worldwide have not eliminated high-carbon assets from their portfolios in the last five years. But "this figure is expected to fall to just 19% for institutional investors and 25% for private investors over the next five years," the study said. This shift will occur primarily in Europe and North America, where more than 60% of investors plan to adopt a zero-carbon target within that timeframe, the report said. But the Robeco study results also show "significant gaps in understanding of the key issues, with many investors simply not knowing where to start in this area, or how to make a difference. "

Eran Chvika

Eran Chvika

Partner

"In France, green hydrogen has been explicitly provided for in energy programs focused on incorporating decarbonized hydrogen into industry and developing a clean mobility strategy

Climate change is increasingly a factor in investors' decision-making. Finance and projects expert Eran Chvika of Pinsent Masons, the law firm behind Out-Law, says this can be seen in the development of the green hydrogen market through massive investment by the industry.

Some countries, individually or in partnership, are already taking steps to develop the hydrogen market. Australia and Germany's plans to explore a new hydrogen supply chain between the two countries are an excellent example. Currently, however, most of the hydrogen produced is powered by fossil fuels - green hydrogen is not currently cost competitive. However, the cost of green hydrogen production is expected to decrease significantly as production expands," he said.

The European Commission adopted a green hydrogen strategy in July 2020, which was designed to make green hydrogen competitive with fossil fuels through the creation of a favorable regulatory framework.

"In France, green hydrogen has been explicitly included in energy programs focused on the incorporation of decarbonized hydrogen in industry and the development of a clean mobility strategy. " said Chvika, who states that the objective is to enable the deployment of this resource on a larger scale. More extensive, more competitive, and therefore more attractive to investors.

Companies and investors will also have to deal with the dangerous nature of the materials produced, which require strict regulations, and which can make the contractual aspect more complex. A complex contractual framework exists in typical hydrogen projects," said Chvika. This framework will often include a shareholder agreement, including financial investors, as well as a financial agreement and possible government subsidy. In a hydrogen project, a consulting contract for design and technical aspects is also common. Regulatory obligations such as the preparation of a hazard study or a safety plan  will also be transferred to the contractors. In this context, engineering, procurement and construction (EPC) contracts tend to play an important role. "And given the nature of the industry and the projects, change of law clauses are also essential in this type of contract.

All of these parameters explain the time it takes for investors to enter the market. Yet, as Chvika points out, "While many of the risks associated with green hydrogen projects are likely to fall to contractors in the early growth phase of this sector, there are nonetheless opportunities for contractors to demonstrate early expertise in this area and position themselves to benefit from a more balanced sharing of risks when the market inevitably matures. "