Shifting investments towards a low-carbon economy

Sustainable and Transition Solutions- Institutional Pressure for Energy Transition

According to research published in Ninety One’s report on the rise of transition finance, 6 out of 10 asset owners in North America view combating climate change as a strategic goal, voicing that large asset management companies are seen to be actively driving their investments towards the road to decarbonization from high emitters.

When it comes to transition finance, the past year’s global climate events have demonstrated a significant drive in the right direction from Northern Europe and Asia Pacific asset owners, but a significantly lower sense of responsibility from North American asset owners, who as outlined in the survey, see internal resistance as main barrier to changing traditional strategies.

However, over half of North American asset owners voiced that fighting climate change is now emerging as a strategic goal, and that financial institutions have a duty to uphold investment capital which drives funding towards the decarbonization of high emitters. Various new funding platforms have surfaced over 2022 with a forecasted growth within their strategy.

One asset manager which has just launched its own unit dedicated to sustainable and transition solutions, is giant BlackRock. With more than $8 trillion in management assets, BlackRock has recently created a new Transition Capital Unit aiming to work with the firm’s colleagues to create new investment strategies and funds. This will not only assist them in deepening the company’s research in the field, but also acts as strategic move to place BlackRock Sustainable and Transition Solutions as one of the global leaders in transitioning portfolios, businesses, industries, and countries to a low carbon economy.

The launch of this new platform is timely ahead of COP27. Glasgow saw many pledges made inside and outside the negotiation rooms regarding net-zero commitments, forests protection and climate finance, among many other issues. But many pledges remain unactioned. According to the Presidential vision statement, COP27 will move the narrative away from negotiations, stirring towards the “planning for implementation” for all these promises and pledges made. UN General Secretary António Guterres has stated the need for renewed commitment to the decarbonization roadmap, urging that COP27 must deliver a “down-payment” on climate solutions that match the scale of the problem.

Although the road towards green finance relies on a slower shift from fossil fuels dependency than wished, strong steps are being taken by key financial players who are increasingly working with portfolio managers and capital markets towards energy transition.

Egypt has called for full, timely, inclusive, and at-scale action on the ground. The questions to be asked are will leaders deliver, and can the market be swayed from within?

For more on COP27 events, follow our blog listing events on the ground.