Fidelity research highlights only 42% of investors are familiar with the concept of a ‘just transition’
· But when explained, 91% believe a ‘just transition’ will have a positive impact on risk / return profiles in the long term
· Only 35% of those familiar with the term already have or are developing a dedicated investment strategy focused on a ‘just transition’
Fidelity International (Fidelity) today reveals key findings from its survey on ‘just transition’ which assesses investor awareness and investment appetite for the theme. ‘Just Transition’ is one of Fidelity’s key sustainability priorities, and in line with its strategy, the firm partnered with Coalition Greenwich by seeking the opinions of over 120 institutional and intermediary investors to provide a deep dive into this important matter.
Investors lack understanding and conviction in achieving a ‘just transition’
Defined by Fidelity as “achieving the transition from a high carbon to a low carbon economy in a manner in which is fair for everyone”, the concept of ‘just transition’ is familiar to only 42% of respondents, with awareness lower among Asian investors (30%) compared with European investors (47%).
In line with the lack of familiarity with the term, investors also revealed a lack of conviction that, as a society, we are likely to achieve a ‘just transition’. Indeed, 43% of respondents suggest it is unlikely; and if we are to achieve it, over a quarter of investors (27%) believe the transition will take more than 15 years, while 52% believe it will be an ongoing process.
This lack of awareness and low level of conviction may explain why only 35% of those familiar with ‘just transition’ already have or are developing a dedicated investment strategy focused on this theme. Europe seems to be stepping ahead with 38% of respondents in Europe have or are developing a dedicated investment strategy versus just 20% in Asia. However, over half (52%) of investors currently consider it as part of a wider approach to ESG.
The investment case: generating positive impact through strategic asset allocation
In the long term, all investors surveyed overwhelmingly believe investing in a ‘just transition’ will have a positive (91%) impact on risk / return profiles, demonstrating that investors do see this theme as an investment opportunity. However, in the short-term investors remain split on whether it will have a positive (21%), negative (26%) or neutral effect (52%).
When asked about the top reasons for investing in a ‘just transition’, over three quarters (77%) of respondents chose “having a positive impact on the environment by achieving net zero” alongside “having a positive impact on the society” (73%), highlighting the close connection between environmental and societal considerations.
Given this response, it comes as no surprise that 92% of the responses highlight the sector of “renewable energy” as the most attractive from an investment perspective, followed by Technology & IT (61%) and Agrifoods (60%). In terms of asset class, 89% of investors believe equities will play the most significant role in achieving a ‘just transition’, followed by private assets (81%) and thematic investments (66%).
Asset class roles in achieving Just Transition
Source: Fidelity International. Q: On a scale of 1 to 5, where ‘1’ is ‘Not Significant’ and ‘5’ is ‘Extremely Significant’. Out of the following asset classes which ones do you think play the most significant role in achieving Just Transition?; Base: 127
Sector focus in achieving Just Transition
Source: Fidelity International. Q: From an investment perspective, which of the following sectors will be the most attractive in terms of achieving Just Transition? Base: 127
Breaking down the barriers
While it is promising that investors see growth opportunities in achieving a ‘just transition’ over the long term, the slow pace of its development can be explained by the numerous barriers that remain. Indeed, the survey highlights the following challenges that impede on progress:
– Lack of clear government policy (46%)
– Proactive lobbying by legacy industries to pollute for longer (29%)
– Geopolitical tensions (25%)
– Economic recession (21%)
– Ingrained consumer behaviours (21%)
Emilie Goodall, Head of Stewardship, Europe, Fidelity International said: “Put simply, a ‘just transition’ means a transition that doesn’t leave anyone behind in the move towards a more sustainable economy. But in reality, ‘a just transition’ encompasses a tangle of issues as it has many ramifications linked to climate, communities, labour markets and divergences between developed and developing countries. As a result, how to measure and implement a just transition is incredibly complex but one thing is clear, the societal impact of transitioning to a sustainable economy has to be a central consideration. And while investors are starting to understand the importance of a just transition, our survey indicates that there is a need to promote further awareness.
“At Fidelity international, we have a key role to play in engaging both investors and our investee companies on how to consider a just transition in a consistent and substantive way, supporting the communities and countries that need it the most to transition. At the heart of our approach is active stewardship – initiating and combining bottom-up corporate engagement, top-down thematic engagement, and system-wide stewardship for maximum impact.”