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

The ultimate superannuation EOFY checklist 2026

Here is a checklist of 28 important issues you should address before June 30 to ensure your SMSF or other super fund is in order and that you are making the most of the strategies available.

Noel Whittaker’s take on the budget

Marketed as a fix for inequality and housing affordability, the latest budget instead delivers a tangle of tax changes that leave everyday Australians worse off.

Australia has no death duties. Technically.

Australia may not levy formal death duties, but a growing web of tax measures is quietly shaping what wealth passes between generations. Now, the 2026 budget adds another layer.

Lithium's rally is real this time – but no-one trusts it

The lithium rally mirrors the early-2010s tech stock surge, with demand set to double by 2030. Supply has been slow to respond, creating a market deficit for future tech like humanoid robotics and solid-state batteries.

Welcome to Firstlinks Edition 662 with weekend update

The debate over the budget is increasingly shaped by frustration and perceptions of unfairness, rather than clear-eyed assessment of policy outcomes.

Two months into retirement

A retirement researcher's take on retirement and her focus on each of her six resource buckets to stay engaged during the transition and beyond.

Latest Updates

Are the government’s CGT changes better for young investors?

New CGT rules promise fairness, but could young investors lose out? A practical scenario reveals how changes impact deposit goals, investment choices, and long-term wealth building for the next generation.

Retirement

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.

Investment strategies

AI can’t pick winning funds, but it can help you avoid losers

Machine learning has been touted a game changer investment management. But a new study overturns claims that AI can generate positive alpha in mutual funds. Here are some practical takeaways for investors.

Investment strategies

Inflation BIG picture: Boomers got lucky, next Gen not so much

A 150-year view shows inflation's upward bias, driven by shifting monetary regimes and war stocks. This marks an end to the low-inflation boom that enriched boomers and ushers in a higher-inflation era for younger investors.

Planning

Tax deductibility of financial advice improves affordability

A shrinking adviser workforce and rising costs are squeezing access to financial advice, just as demand surges. Expanded tax deductibility offers a modest but meaningful boost to affordability.

Retirement

Retirement in reality – 3 months in

A reflection on travel mishaps, smart decision-making, time pressures and rebuilding health habits. Three months in, here's how to navigate the surprising realities of life after work.

Taxation

Calculating the business cost of Australia’s new 'productivity tax'

Amid a national productivity crisis, new economic analysis finds the tax changes in the 2026 Federal Budget create Australia’s first-ever by design 'Productivity Tax', where young people will pay the biggest price.

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.