What is transition investing?
The term ‘transition investing’ describes the allocation of capital to companies, projects and ventures which have chosen to shift from higher-carbon to lower-carbon business models or companies that provide the products and services to support that transition.
With an annual funding gap of US$850bn for emerging markets and developing economies, transition investing presents a meaningful investment opportunity for our clients.
Investing in a transition is not about excluding or cutting off financing to companies with high emissions. Transition investing covers allocations to industries and infrastructure ease an energy transition as well as to high-emitting sectors that require financing to implement their climate strategies. Critical to transition investors is having a credible way to determine which companies can transition.
Investing in a transition can take the form of equity or debt, as well as project financing.
Recognising that the transition towards a net zero emissions economy affects many sectors, as active owners, we engage with companies to address carbon-related risks and opportunities.
Our primary goal, here and across all our strategies, is to achieve the most favourable long-term investment outcomes.
By allocating capital and engaging in this way we can help avoid a disorderly, and more costly, transition to a low carbon economy.
Approaches to investing for a responsible transition
Climate solutions are investments in companies focused on addressing structural growth opportunities linked to decarbonisation and environmental sustainability. This includes investing in infrastructure transformations that support emissions reduction, such as upgrading electrical power grids and modernising transmission systems. Climate solutions also cover innovative decarbonisation technologies and projects, including the development of green hydrogen, an essential fuel source for sectors that cannot be easily electrified directly, and carbon capture and storage (CCS), which is crucial for addressing emissions from sectors with limited decarbonisation alternatives. By allocating capital to these climate solutions, investors contribute to decarbonisation and have the potential to achieve long-term commercial returns as the global economy transitions.
Answering questions about net-zero investing
Ninety One is a member of the Net Zero Asset Managers Initiative. Our membership is founded on a recognition that climate change represents investment opportunity as well as risk. In our goal of achieving the best long-term investment outcomes for our clients, we support orderly, fair and sustainable efforts to move towards a lower-carbon economy.
As a firm with emerging market roots – and with most of our assets invested in such markets – we believe our clients benefit from access to opportunities provided by a measured energy transition. Carbon-intensive emerging market economies, in their growing requirements for transition finance, are among those presenting meaningful investment opportunities.
Accessing transition investments
At Ninety One, we believe the energy transition is creating a multi-year, structural investment opportunity—as well as the chance to help drive towards a clean-energy future.
Emerging market (EM) corporate debt is at the heart of the transition finance opportunity.
Find out about our transition investment solutions.
Find out how Ninety One is incorporating ‘transition’ into its investment research and analysis.