Is your portfolio positioned for climate transition?  

The COP28 climate conference witnessed an important symbolic move towards a low-carbon future. Nearly 200 nations pledged to transition "away from fossil fuels," aiming for net-zero emissions by 2050. This marked the first time that countries had specifically mentioned fossil fuels in a climate agreement — a significant moment highlighting the growing political will to solve climate change. However, the key question we often hear from investors is: what is the current state of the climate transition, and how can I implement transition objectives within my investment portfolio?

This paper examines the state of progress made towards the climate transition, focusing on trends in the energy sector and evaluating specific transition themes. On top of this it presents some outputs from Mercer's Analytics for Climate Transition (ACT) assessment, which we use to help clients set climate objectives and align their investment portfolios with the sustainable transition. 

We find that while markets have been volatile in recent years due to geopolitical events, such as the Russian invasion of Ukraine and its implications for energy pricing, the climate transition continues to gather momentum. Acknowledging renewable energy’s recent underperformance relative to fossil fuel, we highlight three key emerging trends:

1. The improving outlook within the renewables sector,
2. The falling cost of clean energy technology, and
3. The growth in the electric vehicles (EV) segment which is creating spillover effects.

On balance, we see evidence that progress towards the climate transition continues in the face of short-term volatility and political uncertainty. Further, our data suggests that despite its many challenges, the momentum that the transition has built to date remains robust. Download the report for further analysis and insights.