Major investment needed in race to net zero: Macquarie

Speaking ahead of the COP26 meeting, Macquarie boss Shemara Wikramanayake says many in the private sector are mobilising across green investments.

Macquarie Group chief executive Shemara Wikramanayake left for Glasgow after handing down the company’s first-half profits in London.

Macquarie Group chief Shemara Wikramanayake says more collaboration between governments and business is needed, while “multiples” of the current annual spend on energy projects is required for the world to hit net zero emission targets by 2050.

Speaking in London and preparing to head to Glasgow for the UN COP26 meeting, starting this weekend, Ms Wikramanayake said many in the private sector were mobilising their efforts across green investments.

She also noted governments were examining ways to provide more investment certainty for renewable energy projects, including those at an early stage as they plotted a path to lower emissions.

“We need multiples of the level of investment per annum that’s going in if we are to meet the challenge needed in relation to addressing the climate change issue and that’s not just in energy, but obviously in electrification of transport and mobility, what we need to do in agriculture, what we need to do in building,” Ms Wikramanayake said.

She noted that developed nations would also further debate how to assist emerging and developing countries with their transition to lower emissions, as they would prove a large source of emissions through the industrialisation process.

“To help them get that done we need that early-stage, higher-risk first block capital that they’re hoping to get the MDBs (multilateral development banks) to put in $US100bn a year. That was a commitment made some time ago which hasn’t yet been met. We’ll have to see how that plays out with the governments,” Ms Wikramanayake said.

Her comments came after Macquarie unveiled a $1.5bn-plus capital raising to pursue acquisitions across its business, and as the asset management and investment banking giant reported a record $2.04bn interim profit.

Substantial investment in green energy is needed, Macquarie says.

Asked about the Glasgow summit, Ms Wikramanayake said the business sector and governments could increase engagement and look at ways to derisk investment in early-stage projects and attract more investment to the renewable energy sector.

“I can say (there) is the increasing commitments and focus on the private sector from people all around the world, a multitude of sectors not just finance and energy,” she said.

“There will be a lot of collaboration, particularly if we are going to achieve what we need.”

That collaboration with governments would look different across jurisdictions and sections of the renewable energy sector, such as offshore wind or hydrogen, Ms Wikramanayake said.

Earlier this month, she urged governments and business to rapidly accelerate the execution of climate and energy transition strategies, including the need to “radically scale up” changes to ­infrastructure.

The Morrison government this month pledged to meet net zero emissions by 2050, after a ­period of protracted negotiations with the Nationals.

However, the Glasgow meeting is taking place as markets such as England and India experience a crippling energy shortage due to a surge in demand as their economies reopen from pandemic-related closures.

As well as benefiting from energy market volatility, Macquarie sees a raft of opportunities in the green energy sector. On Friday, the company said it was moving its Green Investment Group division to sit within its asset management arm. That change takes effect from April 1 and will include some independent valuations of assets.

Across its business units, Ms Wikramanayake said Macquarie presently had more than 300 renewable energy projects in its pipeline, or 35 gigawatts, as at September 30.

Morgan Stanley analyst Andrei Stadnik, who has a $240 price target on Macquarie’s shares, said the company’s second-half outlook was strong in the investment banking and commodities units and he highlighted that green energy opportunities were growing.

“So we expect this result to support the share price despite the capital raising,” Mr Stadnik said.

Regal Funds Management’s Mark Nathan highlighted robust prospects for the Green Investment Group.

“The shift of this group into the asset management division highlights the potential to deploy more third party capital,” Mr Nathan said.

In a briefing to analysts, Macquarie’s executives were also quizzed about their interest in getting more involved in the market for carbon offsets.

“It’s a small and growing market, and we are looking to position ourselves early in that market, so CGM (commodities and global markets) is starting to offer carbon offsets and tailored programs as well to some of the big energy companies but we expect that will grow,” Ms Wikramanayake said in response to a question.

CGM boss Nick O’Kane echoed that saying: “There’s certainly opportunity. We think it’s an adjacent space to our existing business, and our customers are certainly looking for activity and looking for help in this space.”

On the issue of global supply chain disruptions due to Covid-19 bottlenecks, Ms Wikramanayake said she expected that those hold-ups linked to the pandemic would largely be short-term and not persist over a longer period.

Separately, Macquarie’s results also outlined a string of executive changes, with Daniel Wong stepping down as joint head of Macquarie Capital, effective on Friday. Michael Silverton, the other co-head of the division, becomes the sole chief of that unit.

Macquarie veteran and chief risk officer Patrick Upfold will also leave the group, retiring by the end of the calendar year, after a handover to Andrew Cassidy. Mr Upfold joined Macquarie 25 years ago and also had a long stint as chief financial officer.

Michael Herring has retired as general counsel and head of legal at Macquarie and is being replaced by King & Wood Mallesons managing partner Evie Bruce, who joins in January.