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.

Enabling the transition involves financing high-emitting sectors that require capital to implement credible climate transition plans. This investment approach targets sectors such as steel, cement, and chemicals, where emissions reduction is challenging due to technological or economic constraints. Allocating capital to these sectors supports their efforts to adopt sustainable technologies, such as carbon capture and storage, green hydrogen-based processes, and other low-carbon innovations. Investing in this manner contributes to necessary emissions reductions. It enables industries critical to the global economy to successfully navigate their transition towards net-zero emissions, offering potentially attractive returns in the long term.

• EM economies account for over 60% of today’s emissions but are on a trajectory to represent 90% of emissions growth to 2030. A key reason for this is that country commitments to the transition to net zero vary. In contrast, many EM corporates see this as a business imperative and a way to create a durable, competitive advantage. They are looking to be ahead of legislation or government action and to build low-risk business models.
• Among both high emitters and solution providers, many EM companies are looking to finance the climate-oriented evolution of their businesses with credit. These companies are often competing in global markets and rely on financing solutions both from traditional channels (e.g., banks) and, increasingly, through public and private credit markets, creating a compelling opportunity for debt investors.

At Ninety One, we recognise that climate change represents a systemic and material risk to economies and financial markets. We therefore support global efforts to reduce emissions in line with the goals of the Paris Agreement and are signatories to the Net Zero Asset Managers initiative. As the global economy transitions to a low-carbon future, policy, technology, and market changes present risks to companies dependent on fossil fuels. We actively engage with the highest-emitting companies in our portfolios to support an orderly transition, ensuring they take appropriate action to address transition risks and deliver returns through the transition to global net-zero emissions. We use our proprietary Transition Plan Assessment Framework to assess whether companies have appropriately ambitious, credible, and financially viable plans, and to monitor their progress in implementing actions to achieve these plans.