As investors and the companies they invest in work towards net-zero goals, they need to look beyond ‘pure green’ strategies to transition-related investments, where debt will play a larger role, says Ninety One in a white paper. With five sectors responsible for more than 90 per cent of global emissions and essential for economic growth ‒ power, buildings, mobility, industry, and agriculture ‒ disruption to their output will significantly impact the global economy and could risk a disorderly transition to net-zero, it says. "Public companies account for the vast majority of the world's emissions, forming an important transition universe for equity and debt," the paper says. "We expect transition debt to form the backbone of new capital to fund transition plans. The lower cost and flexibility of debt markets support innovation and, crucially, the ability to link lending to transition-related goals and targets. Debt will also be the most effective tool to mobilize private capital from wealthy nations towards emerging markets, where the bulk of emissions growth needs to be addressed." Another issue is the lack of a common understanding of what qualifies as a transition and it will be important to have more data on transition plans and implementation.
- PWC