Transition investing: a new pillar in sustainable finance | Insight Investment

For investors seeking to finance the transition to net zero by 2050, a new approach is needed to help companies that are pivotal to achieving real-world decarbonisation. We explain how Insight is looking to support our clients focused on transition investing, and why such an approach has rigorous assessment and active engagement at its core.

• To achieve net zero by 2050, it is crucial to address the net-zero transition of carbon-intensive industries. This will mean a change in mindset from a focus on investing in what is ‘green’ today to what needs financing to turn ‘greener’ tomorrow.
• Transition investing, in our view, should target companies with a higher carbon footprint operating in sectors crucial for decarbonisation. Regulators and standard-setters increasingly acknowledge the need for such an approach.
• An assessment of a company’s approach to net-zero and an active approach to engaging with companies are key elements of an effective transition investment strategy, we believe. These are vital given that this approach will likely mean higher carbon intensity level in a portfolio in the short term in exchange for more progress on decarbonisation in the medium to long term.
• A transition strategy also has positive long-term financial potential. Research suggests that improving sustainability metrics could achieve a lower cost of capital, or positive financial performance, for companies. Longer term, supporting the transition of more carbon-intensive sectors could mitigate losses from the carbon transition and contribute to a more stable economic future.

Read more in our paper here.

Please note: We are aware of the announcement by the Net Zero Asset Manager’s Alliance (NZAM) on 13 January 2025 and we are obviously not in a position to comment until their review reaches its conclusion. Insight’s mission is to support our clients in meeting their investment objectives and achieving their desired outcomes. Our investment processes, policies and the investment approaches that we apply in specific circumstances will continue to be anchored in delivering against the objectives set by our clients regardless of the outcome of NZAM’s review.