Mainstream Adoptions of Transition Financing
High-net-worth individuals (HNWIs) are increasingly directing their capital towards transition industries, backing companies in high-emission sectors that are actively reshaping their operations to meet the demands of a low-carbon economy. This shift is driven by a combination of factors, including decarbonization, energy efficiency, and sustainable growth with stable, inflation-linked returns, alongside strategic ambitions to align portfolios with net-zero pathways and manage climate risks across different regions.
Strong Market Fundamentals in Renewables and Digital Infrastructure
Renewables remain one of the cheapest and most dispatchable forms of energy, supported by growing corporate offtake markets and government policies like the U.S. Infrastructure Investment and Jobs Act, which promote energy transition projects. Digital infrastructure also complements green investments by enabling data centers' power needs and broader electrification and digitization trends.
Desire for Diversified and Resilient Real Assets
HNWIs favor core and core-plus strategies in logistics, data centers, living sectors, and infrastructure due to their high barriers to entry, scarcity, and resilience to inflation and economic cycles. Assets linked to energy transition (e.g., renewables, electric grid infrastructure) offer long-term stable cash flows and value creation opportunities.
Increasing Commitment to Sustainable and Impact Investing
Surveys of large family offices and institutional investors confirm rising allocations to renewable energy, biodiversity, water/waste sectors, and forestry/timber, reflecting a recognition of sustainable sectors as major private market opportunities. Investors seek control over capital and impact, balancing financial returns with environmental and social goals.
Strategic Ambition and Governance to Manage Transition Risks
Investors adopt transition planning frameworks involving setting targets aligned with net-zero goals, engaging with policymakers and portfolio companies, and using forward-looking climate risk analyses to adapt investment decisions. This approach mitigates risks from sectors with high greenhouse gas emissions and leverages opportunities in transition-critical industries.
Regional and Generational Variations
In regions like the U.S., regulatory support and infrastructure spending fuel investments in renewables and digital infrastructure. Globally, evolving regulatory environments and investor preferences—especially among next-generation wealth holders—emphasize transparency, digital engagement, and alignment with progressive social and environmental values, influencing HNWIs' investment choices.
Eugenia Koh, Global Head of Sustainable Finance at Standard Chartered, emphasizes that clients understand the concept of climate transition and see opportunities to help future-proof these industries and reap rewards from companies that lead in adapting. However, many investors still relate transition investing to climate investing or renewable energy, rather than a broad sector approach.
To address this understanding gap, Standard Chartered is stepping up education efforts. A recent report by the bank reveals that 87% of HNWIs now have an appetite for such investments. Standard Chartered has committed to mobilising $300bn in green and transition finance by 2030. The bank's Transition Investing Guide offers a framework and key questions for evaluating transition-related funds.
Investors are not looking at sustainable trends just for altruistic reasons but trends that are also focused on financial materiality. Investor interest is particularly strong in low-emissions fuels and carbon capture and storage (CCS). Despite this growing understanding, only 15% of investors fully understand the concept of transition investing, according to Eugenia Koh.
In conclusion, HNWIs invest in transition industries to achieve financial returns resilient to economic and climate shifts, align their portfolios with global sustainability standards and regulatory frameworks, and respond to evolving investor demographics prioritizing impact and transparency. These motivations vary by region due to differences in policy, market maturity, and investor profiles but converge around the central goal of supporting and profiting from the global energy and sustainability transition.
[1] Source: Standard Chartered, "The Future of Transition Investing," 2023. [2] Source: Preqin, "HNW Transition Investing: Opportunities and Challenges," 2023. [3] Source: UBS, "Global Family Office Report 2023." [4] Source: McKinsey & Company, "The Net-Zero Challenge: A Transition Plan for the Energy Sector," 2021. [5] Source: Morgan Stanley Institute for Sustainable Investing, "The Case for Sustainable Investing 2023."
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