Hydrogen: A Regnan guide for investors

Regnan has released a guide to hydrogen for responsible and sustainable investing


Sustainable investing leader Regnan has analysed the environmental impacts of hydrogen production in a new research report aimed at investors.

Regnan’s H2 beyond CO2 report reviews popular hydrogen production technologies and identifies factors that may lead to competitive advantages and potential constraints.

The report — produced by Regnan’s Abby Frank, Alison George, Maxime Le Floch and Oshadee Siyaguna — can be downloaded here.



THERE’S a lot of excitement among investors, scientists and politicians about the scope for hydrogen to be a major energy source of the future, based on its potential contribution to decarbonisation goals.

But there is still a long way to go before hydrogen can be considered a practical alternative to traditional energy sources such as gas.

The conundrum for the world economy between now and 2050 is to reach net-zero emissions while providing enough energy to meet demand from an expanding global population.

This energy transition is at the heart of the United Nations’ Sustainable Development Goals (SDGs), the global agenda launched in 2015 to tackle the world’s toughest environmental and social challenges.

In theory, hydrogen could be used as a fuel for transport and power, as heat for industrial processes and buildings, and as a feedstock for chemicals like fertilisers and industrial products like metals.

In practice, hydrogen’s appeal is difficult to judge.

Hydrogen production needs to be assessed across all sustainability dimensions. Investors and companies are wary of locking into a technology only to find problems later on.
Download Regnan's H<sub>2</sub> beyond C0<sub>2</sub> report
This happened with earlier generations of biofuels and liquified natural gas, all of which were initially promoted as impact solutions.

“It’s a relative game between low-carbon technologies,” says Maxime Le Floch, an analyst with sustainable investing leader Regnan.

Mr Le Floch is a contributor to H2 beyond CO2, a new Regnan research report that examines the environmental impact of hydrogen production for investors.

He is part of a London-based team that manages the Regnan Global Equity Impact Solutions Fund, which aims to generate market-beating, long-term returns by investing in solutions to the world’s environmental and societal problems.

Hydrogen’s potential

“Hydrogen is competing against other technologies for decarbonisation in different parts of the economy,” Le Floch says.

“New hydrogen fuel vehicles have been touted, though with the pace of progress of electric vehicles, hydrogen becomes less likely there. But in other applications like heavy industrial and steel-making, hydrogen might be very interesting.

“We need to keep in mind that these are very long investment cycles, so decisions made today have an impact in 10, 20 or 30 years time. There is a whole carbon cost curve that shows where different solutions stack.”

Growing support for investment in hydrogen technology needs a dose of scepticism — not because the enthusiasm is wrong. It’s just too early to say it’s correct.

“The nature of the investment process within the Regnan Global Equity Impact Solutions team is very comprehensive,” says Regnan’s head of research Alison George, a co-author of the report.

“It’s not just looking at SDGs, but all of the environmental and social impacts. Hydrogen might look attractive, but what are all the implications?”
Key economic, environmental and social issues associated with H2 production. Source: Regnan
Key economic, environmental and social issues associated with H2 production. Source: Regnan
George says when researching hydrogen, the economics are discussed constantly, and decarbonisation is talked about some of the time. “But there were gaps in the environmental case.”

“We needed some of these questions answered to determine if it was suitable for the fund. It was really a process of trying to fill some pretty surprising gaps,” she says.

The result was H2 beyond CO2, a report that looks beyond carbon emissions analysis alone.

The report can be downloaded here.

“The entire approach of the fund is to find solutions to the grand problems of sustainability and that approach informs investment decisions. There’s a preference for solutions with the greatest contribution to make, and the clearest pathway to making a difference,” George says.

Key hydrogen production technologies

The report concludes that climate change benefits can be achieved through both green hydrogen and blue hydrogen, but with some important caveats.

For green hydrogen, which is made with electricity, the energy source drives the climate outcomes and the majority of other environmental impacts.

An answer, potentially, is to couple electrolysers with intermittent renewables like wind and solar to help manage output peaks and avoid generator curtailment.

That would support growth in renewables and improve the economics of hydrogen production as well as maximising the contribution to climate goals.

“Few of us have been asking the right questions… this report gives essential answers on the sustainability of climatetech” – Alex Cameron, Decarb Connect podcast

Blue hydrogen has the potential to be a sustainable and economic option for hydrogen production — particularly in regions with local natural gas resources, existing pipelines and transport infrastructure.

But it relies on successful carbon capture and reliable carbon storage. They must be maintained for longer periods to be climate effective.

The Regnan report shows there is much more work to be done in the field of hydrogen.

“Some solutions look great on paper but when you scrutinise the environmental impacts things start to get more nuanced,” Le Floch says. “There’s a great need for more research.”

Case study: hydrogen production with offshore wind

Almost 200 years ago, physicist Hans Christian Orsted discovered electromagnetism, and changed the course of history.

Orsted laid the foundation for the modern generation of electricity, and his name is now synonymous with energy in the Scandinavian countries. Orsted, the company, is the biggest offshore wind developer in the world.

Orsted is one of the few global companies able to generate huge amounts of energy through its offshore wind projects across Europe and in Taiwan. It is a critical piece of the renewable energy puzzle, and not just in terms of wind.

“If you want to decarbonise hydrogen production then you need large sources of energy,” says Regnan’s Maxime Le Floch.

“You can take electricity from the grid but that does not always work. So this is why developing hydrogen production with offshore wind makes sense and projects are being announced.

“Offshore wind projects are on a big scale – and scale is a challenge for other sources of renewable energy like onshore wind and solar,” Le Floch says.

“We are talking about gigawatt scale projects in the North Sea, for instance.”

It demonstrates the necessary links between different energy sources, if renewable power is to reach its potential. It also highlights that companies that could benefit from greater use of hydrogen don’t necessary sit in that sector.

“Orsted is getting involved in exploratory projects around hydrogen and much of the work is to demonstrate that the technology can work,” Le Floch says.
Download Regnan's H<sub>2</sub> beyond C0<sub>2</sub> report

About the authors

Alison George is Regnan’s head of research. She has deep experience in ESG, responsible investment and active ownership. Alison oversees Regnan’s research frameworks, processes and outputs, ensuring it remains at the forefront of industry practice and meets evolving clients needs.

Oshadee Siyaguna is a senior ESG analyst with Regnan, responsible for research and engagement and the generation of analysis and insights on ESG themes and issues. Oshadee joined Regnan as an ESG analyst in 2015. Prior to that he was Assistant Vice President at PolitEcon Research.

Abby Frank is an ESG analyst with Regnan, responsible for research and engagement and the generation of analysis and insights on ESG themes and issues. Abby joined Regnan in 2018.

Maxime Le Floch is an investment analyst with Regnan’s Global Equity Impact Solutions team. He has a decade of experience in sustainable investment. Maxime previously worked as an investment analyst at Hermes where he helped manage Hermes Impact Opportunities Equity Fund and led the integration of ESG and stewardship across investment strategies.

About Regnan

Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.

Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.

Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems, while the Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change.

Both funds are distributed by Pendal in Australia.

Visit Regnan.com

Find out about Regnan Global Equity Impact Solutions Fund

Find out about Regnan Credit Impact Trust


For more information on these and other responsible investing strategies, contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com.

Regnan is a standalone responsible investment business division of Pendal Group Limited (Pendal). Pendal is an Australian-listed investment manager and owner of the J O Hambro Capital Management Group.
Regnan’s focuses is on delivering innovative solutions for sustainable and impact investment, leaning on over more than 20 years of experience at the frontier of responsible investment. “Regnan” is a registered trademark of Pendal.
The Regnan business consists of two distinct business lines. The investment management business is based in the United Kingdom and sits within J O Hambro Capital Management Limited, which is authorised and regulated by the Financial Conduct Authority and is registered as an investment adviser with the SEC. “Regnan” is a registered as a trading name of J O Hambro Capital Management Limited.
The investment team manages the Regnan Global Equity Impact Solutions (RGEIS) strategy, which aims to generate market-beating long-term returns by investing in solutions to the world’s environmental and societal problems. The RGEIS strategy is distributed in Australia by Pendal Fund Services Limited.
Alongside the investment team is the Engagement, Advisory and Research (EAR) team of Pendal Institutional Limited in Australia, which has a long history of providing services on environmental, social and governance issues. While the investment management team will often draw on services from and collaborate with the EAR team, they remain independent of the EAR team and are solely responsible for the investment management of the RGEIS strategy.
The Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change. Regnan Credit Impact Trust is distributed in Australia by Pendal.
This article has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and the information contained within is current as at February 10, 2021. It is not to be published, or otherwise made available to any person other than the party to whom it is provided.
PFSL is the responsible entity and issuer of units in the Regnan Global Equity Impact Solutions Fund (ARSN 645 981 853).
A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1800 813 886 or visiting www.pendalgroup.com. You should obtain and consider the PDS before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested.
This article is for general information purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation.
The information in this article may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information in this article is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information.
Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance.
Any projections contained in this article are predictive and should not be relied upon when making an investment decision or recommendation. While we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections.