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 growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

Family trusts: Are they still worth it?

Family trusts remain a core structure for wealth management, but rising ATO scrutiny and complex compliance raise questions about their ongoing value. Are the benefits still worth the administrative burden?

13 ways to save money on your tax - legally

Thoughtful tax planning is a cornerstone of successful investing. This highlights 13 legal ways that you can reduce tax, preserve capital, and enhance long-term wealth across super, property, and shares.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Latest Updates

Investment strategies

Warren Buffett's final lesson

I’ve long seen Buffett as a flawed genius: a great investor though a man with shortcomings. With his final letter to Berkshire shareholders, I reflect on how my views of Buffett have changed and the legacy he leaves.

Property

The housing market is heading into choppy waters

With rates on hold and housing demand strong, lenders are pushing boundaries. As risky products return, borrowers should be cautious and not let clever marketing cloud their judgment.

Investment strategies

Dumb money triumphant

One sign of today's speculative market froth is that retail investors are winning, and winning big. It bears remarkable similarities to 1929 and 1999, and this story may not have a happy ending either.

Retirement

Can the sequence of investment returns ruin retirement?

Retirement outcomes aren’t just about average returns. The sequence of returns, good or bad, can dramatically shape how long super lasts. Understanding sequencing risk is key to managing longevity risk.

Strategy

How AI is changing search and what it means for Google

The use of generative AI in search is on the rise and has profound implications for search engines like Google, as well as for companies that rely on clicks to make sales.

Survey: Getting to know you, and your thoughts on Firstlinks

We’d love to get to know more about our readers, hear your thoughts on Firstlinks and see how we can make it better for you. Please complete this short survey, and have your say.

Investment strategies

A framework for understanding the AI investment boom

Technological leaps - from air travel to computing - has enriched society but squeezed margins. As AI accelerates, investors must separate progress from profitability to avoid repeating past mistakes.

Economy

The mystery behind modern spending choices

Today’s consumers are walking contradictions - craving simplicity in an age of abundance, privacy in a public world. These tensions tell a bigger story about what people truly value and why.

Sponsors

Alliances

© 2025 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.