The role of investors in enabling the transition to net zero

The global business climate has become a lot more uncertain – the Ukraine crisis, soaring inflation, rising interest rates, an economic slowdown in China and a first quarter economic cotraction in the US. Investors began to put in place new post-Covid operating models to integrate ESG principles into their investment strategies, adjusting their investment allocation to pick the 'winners' from the race to net zero. It was already challenging for private equity managers, in particular, to find a way to reconcile high financial returns with still unclear ESG objectives. However, the recent perfect storm of political and economic uncertainty is leading investors to carefully reassess their investments.

There are trade-offs between the three components of ESG. Is it possible to back the energy transition and make it a ‘just’ transition at the same time? How can investors possibly get a handle on this kind of trade off? What measurement capabilities do they need to use? Previously, the main objective of managers was to achieve the best financial returns for their investors. Now, their investors also have climate change-related priorities.

The transition to a net zero economy requires the complete, bottom-up transformation of the global economy. In theory, portfolio companies with the knowhow and capital to make this shift would be well placed to achieve 'green' outcomes. They would be able to capture the financial returns that incentivise innovation and investment and create opportunities for long-term investors at the same time. It is argued that companies that have embraced ESG principles will be better quality companies and produce higher risk-adjusted financial returns in the long term. However, in reality, judging whether an investment is an example of 'greenwashing' or genuinely committed to an ESG philosophy has always been a challenge. In light of the Ukraine crisis and heightened economic uncertainty, ESG integration objectives have been overshadowed by geopolitical concerns and economic considerations.

This keynote address and roundtable discussion – organised in partnership with Bain & Company – will explore how investors, in particular private equity, could become actively involved with management teams to deliver the energy transition and achieve broader ESG goals. It will examine how investors are adapting and responding to this challenging, new business environment. This high-level event will take place on the sidelines of the World Economic Forum Annual Meeting 2022 in Davos. 

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