Exposure to hydrogen remains marginal in the portfolios of sustainable impact investors, with emissions intensity across the value chain a key factor when considering its credentials as a green investment.

While hydrogen produced from electrolysis using renewable or nuclear power has a much lower emissions intensity than grey hydrogen, for many applications—including light-duty transport, power generation and heating—direct use of renewables via electrification can often be regarded as more sustainable.

“There are fewer energy losses, fewer risks of gas leakage and explosions as well as less exposure to risks of water stress compared to hydrogen—at least for wind and solar power,” Elchin Mammadov, co-head of EMEA ESG research at stock market index and research firm MSCI, tells Hydrogen Economist.

“We should try to move away from referring to hydrogen as ‘sustainable’ or ‘unsustainable’ as it creates unnecessary confusion,” he adds. Instead, the focus should be on comparing the emissions intensity—as measured by tonnes of CO₂e/MWh—throughout production, storage and transport of hydrogen with other viable alternatives.

“The combined enterprise value of companies involved in electrification and renewables is many magnitudes higher than that of hydrogen pure plays” Mammadov, MSCI

In some cases, such as cement manufacturing and heavy-duty transport, low-carbon hydrogen will be the most viable alternative to fossil fuels, Mammadov says. But even in hard-to-abate sectors, there are a growing number of viable non-hydrogen alternatives emerging, such as biofuels in transport and electric arc furnaces in steelmaking.

“The combined enterprise value of companies involved in electrification and renewables is many magnitudes higher than that of hydrogen pure plays,” says Mammadov.

Sustainable investment firm Planet First Partners confirms that only 10–15pc of its pipeline of potential investments is exposed to hydrogen, with the rest primarily related to electrification. The company had invested in electrolyser manufacturer Sunfire as one of its first two portfolio companies.

While Planet First sees hydrogen as a key component of the energy transition, the firm has set additional criteria for investing in companies beyond the EU ‘green’ taxonomy criteria for climate change mitigation—which includes less than 3t CO₂/kg of hydrogen produced—to cover all other environmental objectives such as pollution and biodiversity.

“We have a strong restriction to operating with anything associated with fossil fuels,” says Sergio Carvalho, head of impact at Planet First.

Infrastructure or infrastructure-associated projects are also outside of the firm’s mandate.

“We target the technology providers who demonstrate the strongest technological differentiations,” Carvalho says. These include electrolyser manufacturers and companies innovating in storage and transportation, although on the latter, “we have not found anything that has proven technological readiness or compels initial commercial traction,” he adds.

US-Europe gap

Within the energy sector, an increasing number of large operators are investing in hydrogen, although it remains a relatively small proportion of planned capex.

“Historically, we have been seeing a split whereby Europe-based companies have been putting more effort to deploy hydrogen projects while their US-based peers were focusing more on the renewable natural gas projects,” says Mammadov.

The Inflation Reduction Act has been a “gamechanger”, with US companies increasingly seeking to make up the gap with their European peers in developing and deploying hydrogen projects, he adds.

 

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Author: Polly Martin