Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

A practitioner's guide to investing in the energy transition

  •   Fidelity
  •   31 October 2024
  •      
  •   

Introduction from Jenn-Hui Tan, Chief Sustainability Officer

The challenge of constructing a carbon neutral economy – quickly – can seem so complex that it begs the question: where do you even start?

Investors face the same conundrum. The capital demand for funding the transition is eye-watering (USD $4 trillion every year to reach net zero by 2030, according to the United Nations).1 There is an overwhelming number of places to allocate portfolios as they pivot to decarbonise, and the benefits of different strategies is not always obvious. Global clean energy investment is now nearly twice that of fossil fuels, but it is still too slow to meet the goals of the Paris Agreement.2 Easing the way for investors is critical.

Doing so means re-configuring capital markets around a new, clear policy direction. It means rapidly evolving regulation and incentives across regions and competing economies. It means companies being transparent not only about their scope 1 emissions (those they are directly responsible for) but also their scope 3 – those produced throughout their value chains.

It means there’s a lot for investors to think about.

This guide aims to provide some clarity over what the transition means in practical terms as an investment theme. We look at the steps that can be taken to ensure portfolios keep pace with climate pathways. We confront some of the big hurdles in doing so, like choosing the right blend of strategies, or how certain hard-to-abate sectors and countries are managing their own daunting decarbonisation plans.

It explores the opportunities for investors too, including the materials from which green infrastructure is built and powered, spanning asset classes from equities to bonds to real estate. There is also the question of how different a successful transition might look across developed and emerging markets, and how the choices for investors in those regions can vary. In these pages you’ll find the best thinking from Fidelity International’s portfolio managers on where and when specific allocations make sense.

Underpinning all these ideas is the direction set by policymakers. Private investment can do its part, but what is becoming abundantly clear – and is echoed by our global team of analysts here – is that the energy transition must be driven from the top. There has been some success with the heavy investment ushered in by the Inflation Reduction Act in the US and the regulatory wave precipitated by the EU’s Green Deal. But these initiatives stand in contrast to confused or weaker policy signals elsewhere. For the most part there is still not enough focus on long-term economic incentives: it must make commercial sense for a company to change, and markets need assurance that regulation won’t waver.

Investors also need agreed scientific pathways against which they can measure company performance. Only then can they be confident that a particular activity is doing enough to mitigate transition and physical risks.

With that kind of direction, companies and nations can refine their own plans, highlighting the obstacles to their net zero targets. Progress then becomes self-reinforcing: the obstacles reveal where more policy and innovation are needed, government action clears the way and bolsters those markets.

What you’ll find in these articles is informed by the latest details to have emerged from climate financing frameworks and taxonomies. It follows developments that underline the energy transition as a vital trend for investors, such as Japan’s recent leadership in transition finance, or signs that China may commit to a more ambitious cut in its emissions on the back of its huge renewables rollout. And, of course, there’s the advancements in technology which continue to broaden the scope of companies, themes, and commodities that investors can include in low-carbon portfolios.

The energy transition is a topic of phenomenal scale. We hope this guide helps bring it down to size.

Five ways to jump-start the renewable energy transition now | United Nations
World Energy Investment 2024 | IEA

Download the full paper

 

  •   31 October 2024
  •      
  •   

 

Leave a Comment:

banner

Most viewed in recent weeks

How to minimise tax with a will

Inheritance tax implications in Australia may surprise some, as poor estate planning without proper wills or trusts can lead to costly tax bills and delays for beneficiaries.

Testamentary trusts post-budget: Estate planning, tax reform and the ‘death tax’ debate

Proposed Budget changes to taxation are casting new uncertainty over testamentary trusts, prompting closer scrutiny of estate planning structures and the real implications of reforms still taking shape.

Meg on SMSFs: The CGT changes don’t impact super but what about Div 296 tax decisions?

New CGT rules could tip the scales in the super vs non-super debate. For those facing the Division 296 tax, the case for withdrawing has gotten more complex. A "comparison rate" tool may help assess decisions.

High quality businesses are on sale

Beneath the dominance of the ASX's largest stocks, much of the market has been left behind. High-quality companies are now trading at levels rarely seen, offering opportunities for investors willing to look deeper.

The investment mistake killing your returns

Retail investors face an increasingly complex product environment, but simplicity may be the most overlooked advantage in building a portfolio you can actually live with.

Welcome to Firstlinks Edition 667 with weekend update

The downfall of the giant and three lessons for investors.

  • 18 June 2026

Latest Updates

SMSF strategies

Meg on SMSFs: How wide is the ban on LRBAs?

The government's recent deal with the Greens has put SMSF property borrowing on the chopping block. The change raises tricky questions about timing, exceptions and what SMSFs will still be able to buy.

Shares

Why Australian shares are falling behind the world

Australia’s market boasts a long record of outperformance, but recent results tell a different story. Is the ASX’s lagging performance a temporary setback or evidence that structural forces will keep global markets ahead?

Taxation

The strange effect of the 30% minimum capital gains tax

The 30% minimum tax on capital gains sits at the heart of the budget's proposed reforms. Yet the mechanics reveal anomalies that introduce unexpected distortions that raise questions about its design.

Shares

The next phase of Australian equity leadership

For years, banks have powered Australian sharemarket returns. But changing economic conditions, stretched valuations and global trends suggest the next generation of winners may not be found in familiar domestic sectors.

Economy

Global market growth hinges on Iran War and AI rollout

Global growth is facing mounting pressure from war, higher oil prices, inflation and trade tensions. But a wave of AI-related investment may prove powerful enough to support economic activity and reshape the outlook for markets.

Retirement

The retirees who can't spend

Why do so many retirees pass away with their wealth intact? Conventional wisdom blames pension rules for the reluctance to spend, but a case study from New Zealand shows that the answer may not be as predictable.

Investment strategies

Here’s my investment philosophy. What’s yours?

Investors often hear they need an “investment philosophy,” yet few know what that really means. Beneath the jargon sits a simple idea: a handful of core beliefs that shape every financial decision, for better or worse.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.