Mainstream Adoption of Transition Finance
Climate risks are increasingly viewed as investment risks by companies, according to Eugenia Koh, Global Head of Sustainable Finance at Standard Chartered. This perspective is reflected in the growing trend among high-net-worth (HNW) investors towards transition investing.
While the global appetite for transition investing varies by region, there is a shared focus on sectors that align with long-term structural shifts, such as energy transition and digital connectivity. HNW investors are particularly attracted to infrastructure-related sectors, with a preference for core-plus and value-add infrastructure strategies that offer strong income and inflation protection.
In the U.S., tax law changes and political uncertainties are influencing portfolio diversification, leading to increased interest in infrastructure to hedge inflation and growth risks. European and other developed markets, on the other hand, may differ in regulatory drivers and investment vehicles but are likely to see parallel trends in infrastructure and transition investing.
The economic cost of inaction on climate change is already visible, with damage from global natural disasters totalling $380bn in 2023. Investors are not just looking at sustainable trends for altruistic reasons but for trends that are also focused on financial materiality.
Transition finance is more than a niche offering for Standard Chartered. The bank has committed to mobilizing $300bn in green and transition finance by 2030. Koh and her team are increasing education efforts to close the understanding gap, as only 15% of investors fully understand the concept of transition investing.
Despite the challenges, 87% of HNWIs now have an appetite for such investments. In the UAE, positive societal and environmental outcomes lead, with financial returns and personal values tied in second. Many of these investors built their fortunes in sectors like manufacturing, energy, and heavy industry, which are under pressure to decarbonize.
In Mainland China, environmental and social impact is the leading driver, followed by returns and compliance with social norms. Investor interest is particularly strong in low-emissions fuels, carbon capture and storage (CCS), and green hydrogen.
In the UAE, one of the top barriers to transition investing is access, with 36% citing limited availability of suitable investment products. However, the growing secondary markets, including private infrastructure and equity secondaries, are providing liquidity and access to mature, cash-generating assets, appealing to investors managing portfolio allocations and seeking reduced blind-pool risk.
In the UK, the East Coast Cluster aims to capture and store up to 4 million tonnes of CO2 annually by 2030. In Hong Kong, personal values and improved returns are the top motivators, followed by social and environmental impact.
As the world moves towards a low-carbon economy, high-net-worth investors are increasingly directing capital towards transition investing, ensuring their portfolios are prepared for a world where carbon prices, regulatory changes, and shifting consumer demands could reshape industries overnight. The financial and societal opportunities from transition investing could be vast over the next decade.
