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

Are you making these SMSF mistakes?

After four decades advising investors, there are a few common mistakes I've seen SMSF investors make. From holding too much cash and chasing yield to overtrading and trusting tips. Are these errors costing you?

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Retirement spending is not one-size-fits-all

New data challenges the idea that Australians are underspending their super. The bigger issue may be helping retirees navigate complexity, make confident decisions and use their savings to support security, wellbeing and choice.

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

The missing link in the CGT debate

A little-noticed consequence of Labor’s tax changes could have implications well beyond investors’ tax bills. The issue raises bigger questions about incentives, capital allocation and the drivers of long-term economic growth.

Latest Updates

SMSF strategies

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

The ageing ‘crisis’ has not and will not happen

Rising age dependency is frequently treated as a warning sign for economies. But when actual workforce participation is examined, a strikingly different picture emerges about ageing, productivity and economic sustainability.

Retirement

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

Shares

Four charts that expose market concentration risk

Investors have recently been rewarded for backing market leaders, but history suggests this eventually comes at a cost. Now may be the time to review whether your portfolio is carrying unintended risks beneath the surface.

Investment strategies

The case for gearing beyond property

Most Australians gear into property but ignore shares. That may be a mistake. Used carefully, geared equity strategies can enhance long-term returns, reduce cash tied up in growth assets and support retirement income goals.

Economy

Australia's $1 trillion debt pile

The headlines exclaiming that Australian government debt has hit A$1 trillion and US government debt has hit $40 trillion has turned heads, but how serious are they really? Will Australia's mix of debt create challenges?

Economy

Has 100 years of growth made us any happier?

For decades, GDP has been the benchmark for economic success, but has it made us materially happier? If happiness does not rise in lockstep with prosperity, are we overlooking what constitutes a successful society?

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 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.