A ‘Code Red’ for humanity. That’s how the UN phrased its stark warning on climate change and a quick glance at news websites highlight heatwave induced wildfires in California, Greece, and Italy; events that used to happen once a generation, now occurring more and more frequently.

The blame is laid squarely at our feet, human activity. From the cars we drive, the clothes we buy and the fuel that heats our homes our lives have come with consequences and its time to pay the piper.

CONSUMERS TO BEAR THE COST

And consumers will have to pay, whether it’s in the switch from petrol to electric vehicles, replacing gas boilers with hydrogen ones or installing heat pumps or shifting eating habits. With change comes opportunity and savvy investors will be considering what British society and British homes will look like in 10 years’ time.

Investors have already waded deep into the pool of ethical investing and the Government’s much anticipated green bonds will make it easier for people to use their cash to support environmental change.

But there are other opportunities to explore beyond our borders such as in the US where president Biden’s anticipated infrastructure bill is focusing minds.

In the UK, now lockdowns have come to an end, the Government is under increasing pressure to do more than just talk – especially with November’s COP26 summit in Glasgow looming.

It has said it’s committed to build back better and its 10-point plan for a green industrial revolution puts our homes firmly at its heart. And it’s not hard to understand why.

EMISSIONS START AT HOME

Our homes are still the highest overall contributors to greenhouse gas emissions in the UK. In order to achieve the 78% cut to overall emissions the Government has pledged to make by 2035, tackling household energy use has to be a priority and a strategy is due to be published in the autumn. But already companies like Centrica (CNA) are salivating at the potential opportunities.

During a recent earnings call you could feel the expectation coiled inside the company’s new boss Chris O'Shea. And it’s not just utilities strategising for a piece of the action, ‘Big Oil’ is also positioning itself to provide cleaner, greener fuel like hydrogen, though a study out this week has cast doubt on hydrogen’s environmental credentials.

Wherever the energy comes from it will have to be cost effective or heavily subsidised for consumers to swallow the change at least in the short-term.

The last time our homes underwent this kind of fundamental change was in the 1970s. Then the switch from coal fires and immersion heaters was as much about status as a lifestyle boon.  Then the investment came with an immediate dividend for the consumer, every room could be lived in even in the depths of winter and the open plans we now prize became a possibility.

Today 95% of all homes boast central heating, and the majority are powered by gas. Changing to heat pumps or some other less carbon-intensive method of keeping our homes warm will take every one of the 14 years the Government has projected and a few more besides. Think of the building work, the retail sales and the infrastructure investment not to mention the cost to consumers of installing a new heating system.

THE EV OPPORTUNITY

Whilst the switch to EVs is more advanced there is still a long road ahead and like heating, price is a major issue even if competition is beginning to make an impact.

EV ownership has exploded during lockdown and in the July figures for new car registrations almost 30% were electric and 20% more were what’s termed ‘mild hybrids’.

Tesla has remained steadfastly popular with investors but they’re also taking another look at traditional carmakers judging that current issues with semi-conductors shortages are transient and the outlook over the next few years is one of decent growth as these companies take their own slice of the EV pie.

Investors need to be alive to other opportunities that this code red situation might create in what will have to be a pretty rapid reaction on the part of consumers and governments to avert a really serious climate crisis.

By Danni Hewson, AJ Bell financial analyst

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