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Supporting sustainable finance advocates is the main goal of Altiorem and this is what your summary is trying to help individuals and organisations achieve. You are writing for a financeprofessional who caresabout sustainability but isn't an expert. Keep the end-user in mind. Imagine that the user will be using your summary in a presentation to a board of directors when making the case for sustainability.
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Electric Vehicle Fleets: An Impact Opportunity for Investors Investor Briefing | December 2019 Lead author: Christian Wilson About ShareAction ShareAction is a UK registered charity working globally to lay the tracks for responsible investment across the investment system. Its vision is a world where ordinary savers and institutional investors work together to ensure our communities and environment are safe and sustainable for all. In particular, ShareAction encourages institutional investors to be active owners and responsible providers of financial capital to investee companies, while engaging meaningfully with the individual savers whose money they manage. Since 2005, ShareAction has ranked the largest UK asset owners and asset managers on their responsible investment performance. Contact Christian Wilson Senior Research Officer ShareAction
[email protected] Helen Wiggs Engagement Manager ShareAction
[email protected] Sonia Hierzig Senior Project Manager, Climate Change ShareAction
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[email protected] +44 (0)20 74037800 16 Crucifix Lane, London UK SE1 3JW Executive Summary 4 Introduction 5 Growing demand, growing emissions 5 Electric vehicles and the environment 6 The business case for EV fleets 9 Financial incentives 9 Regulatory risk 10 Reputational benefits 12 Impact opportunities 13 The importance of fleets 13 Environmental impact 14 Social impact 15 Just transition 15 Economic impact 15 Supply chain risks 16 Investor engagement 17 EV 100 17 Investor Decarbonisation Initiative 17 Investor Recommendations 18 References 19 4 Executive summary Decarbonising road transport will be crucial for meeting the goals of the Paris Agreement. Transportation accounts for 23% of global CO2 emissions, of which 74% comes from road vehicles1. Yet despite improvements in vehicle fuel efficiency, emissions have continued to rise. GDP growth, the ownership of fuel-intensive SUVs, and the proliferation of online commerce have increased emissions from both light- and heavy-duty vehicles2. However, the automobile industry is currently in flux. The market for electric vehicles (EVs) is growing rapidly, accounting for 2.5% of new vehicle sales in 20183 - marking a 68% year-on-year increase4. This rapidly growing market, propelled by falling costs and supportive government policy, has the potential to turn the tide of rising transport emissions. To accelerate the transition to an EV based transport system, corporate fleets will be key. Companies throughout the economy, from retail to heavy industry, own and operate road vehicles or rely on them within supply chains. At present, over 60% of all new vehicles sales in Europe are to corporate fleets5. With this figure set to grow, ensuring that these fleets are electric is of critical importance. Corporates also have a vital role to play in building out the EV charging infrastructure needed for fleets, customers, and employees. Alongside the environmental impact, there is also a business case for switching to EV fleets. There is the potential to cut operational expenditures, improve reputations, and manage a changing regulatory environment. For example, in London, the Ultra-Low Emission Zone (ULEZ) penalises high emission vehicles6, while on a global scale, 34 cities have pledged zero-emission zones by 20307. For institutional investors, engagement on EV adoption can therefore not only make financial sense but also generate positive impact. As the share of new vehicles entering the corporate channel grows, fleets have the potential to stimulate demand for EVs, driving down costs, mitigating emissions and accelerating widespread EV adoption. As a result, this report argues that EV fleets should be firmly on the investor agenda. EXECUTIVE SUMMARY EXECUTIVE SUMMARY Investor Recommendations 1. Engage with investee companies with large operational corporate fleets on EV adoption. 2. Engage with investee companies on the provision of EV charging infrastructure for corporate fleets, employees and customers. 3. Engage with companies on membership of EV100, a global corporate initiative covering recommendation (1) and (2). 4. Amplify the power of engagement by collaborating with other investors, for example through the Investor Decarbonisation Initiative (IDI). 5. Consider broader issues related to EVs when engaging with corporates, the mining sector and automobiles sector, for example, social impact and a just transition. 5 Introduction This section outlines why EV adoption is needed to decarbonise road transport. Growing demand, growing emissions Between 2005 and 2017, the fuel economy of light-duty vehicles (LDVs) dropped 18%8. Yet, despite this drop in carbon intensity, emissions have continued to rise due to increased demand. Emissions from LDVs are up 44% since the turn of the century, while emissions from trucks and buses in the heavy-duty vehicles (HDVs) segment have risen by 41% (Figure 1). Demand for transport is not set to subside. In fact, in the International Energy Agency (IEA) Reference Technology Scenario (RTS), which considers existing country-level climate commitments formed under the Paris Agreement, annual passenger kilometres from light- and heavy-duty road transport increase by 93% and 69% respectively from 2014 to 20509. In order to reduce absolute emissions against this backdrop, widespread EV adoption will be vital. This is demonstrated by Figure 2, which compares the consumption of gasoline, diesel, and electricity in the transport sector under different scenarios. When global temperatures rises are limited to or kept below 2°C, in line with the Paris Goals, demand for electricity increases at the expense of conventional fuels. INTRODUCTION Figure 1: Transport sector CO 2 emissions 1.5 2.0 2.5 3.0 3.5 4.0 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 01 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 Passenger vehicles Road freight vehicles Source: IEA G tC O 2 6 Decarbonising road transport Unlike fossil fuel powered vehicles with internal combustion engines (ICE), EVs produce zero direct emissions through the tailpipe of exhaust systems. However, fossils fuels can still be burnt upstream to generate electricity. When considering the environmental impact of EVs, it is therefore important to assess lifecycle emissions, rather than direct emissions. INTRODUCTION Figure 2: Transport gasoline and diesel consumption Transport electricity consumption 0 20000 40000 60000 80000 100000 120000 0 5000 10000 15000 20000 25000 30000 35000 40000 2015 2025 2030 2035 2040 2045 2050 2055 2060 2015 2025 2030 2035 2040 2045 2050 2055 2060 2020 2020 Source: IEA 2.7oC - RTS 2oC - 2DS 1.75oC - B2DS 7 It is clear that to realise the full potential of EVs to cut emissions, existing and new electricity supply needs to be decarbonised. In the IEA New Policies Scenario (NPS) derived from existing climate commitments, electricity demand from the global EV fleet reaches almost 640 TWh in 2030, while in the more ambitious EV30@30 scenario, where EVs account for 30% of car sales by 2030, electricity demand reaches 1,110 TWh by 203011. For context, global electricity consumption neared 23,000 TWh in 201812. INTRODUCTION Lifecycle emissions for road vehicles can be broken down into different sources. For example, those originating from vehicle manufacturing, battery production, the fuel cycle and the tailpipe. Fuel cycle emissions arise from the production of electricity used to charge EVs, while tailpipe emissions arise from the burning of fossil fuels. Figure 3 visualises these sources of emissions for a Nissan Leaf, the bestselling European EV in 201810. In countries such as Norway and France, lifecycle EV emissions are significantly lower than conventional vehicles. This is due to a relatively low-carbon electricity mix, which lowers fuel cycle emissions compared to countries such as Germany and the US, where the electricity mix is more carbon-intensive. However, even in countries with carbon-intensive electricity, EV adoption can lay the groundwork for future emission reductions as electric grids are decarbonised over time. 0 50 100 150 200 250 300 A ve ra g e E u ro p ea n C ar To yo ta P ri u s E co E U A ve ra g e F ra n ce G er m an y N et h er la n d s N o rw ay U K U S Conventional vehicle Nissan Leaf Tailpipe Fuel Cycle Other Manufacturing Batteries Figure 3: Lifecycle emissions: Conventional vehicle vs. Nissan Leaf C O 2 e q u iv a le n t e m is si o n s (g ra m s p e r k m ) Source: ICCT 8 Alongside the extra electricity capacity requirements arising from large-scale EV adoption, electric grids may have to adapt to changing patterns in energy consumption. For example, uncontrolled EV charging at times of peak demand could add to grid instability. However, controlled charging, for example at times of low demand, could have the opposite effect and smooth load curves. Furthermore, the ability of EVs to absorb and discharge power into the grid has the potential to improve grid flexibility and store energy from intermittent renewables. INTRODUCTION 9 The Business Case for EV Fleets This section outlines some of the direct advantages of EV fleets for businesses. For example, economies of scale can enable corporate fleets to capitalise on cost savings, while on-site charging infrastructure can remove structural barriers to EV adoption. Fleet owners also tend to have predictable and repeated journeys, reducing the potential for range anxiety. Financial incentives Cost savings are a key motivator for many business decisions. When comparing EVs with ICE vehicles, cost parity, which occurs when purchase prices are equal, is expected to occur in the coming decade with McKinsey predicting cost parity by around 202513. This cost competitiveness is being driven by sharp falls in the cost of batteries, the key component in EVs. According to BloombergNEF, for a US mid-sized car, EV batteries made up 57% of the total cost in 2015. In 2018, this figure dropped to 33% and is forecast to fall to 20% by 2025 (Figure 4)14. On a total cost of ownership (TCO) basis, taking into account lifecycle costs15, EVs are in some cases already cost-competitive or cheaper than ICE vehicles. This is down to several factors, including cheaper refuelling, regulatory support and lower servicing costs due to fewer moving parts. Figure 5 shows the cost-competitiveness of EVs in certain regions by