Sustainable/Impact Investing] Unpacking the Energy Transition: How the Landscape Is Shifting on the Road to Net Zero (Oct 20, 2025)

Hi All,

I wanted to share some quick notes from the panel I attended recently. As always, I would love to hear your thougths and feedback.

The topic was about unpacking the energy transition – How has the landscape changed in the road to net zero? Salim Mansoor, Head of Compliance UK, SMF 16 & Deputy Head of Compliance EMEA and APAC, Nuveen Investment Management Charlotte Dicker, Partner, Head of Client Relations and Responsible Investment, Oldfield Partners Rachel Fletcher, Head of EMEA Sustainability Research, Morgan Stanley Virginia Martin Heriz, Head of Multilateral Development Banks Research & Global Coordinator of Sustainable Investing Research, J.P. Morgan.

Bottom Line: This is not a story of retreat, but of repricing the route. Capital is following credible economics, disciplined delivery, and future-fit strategies—quietly powering a pragmatic, data-driven transition beneath the noise of the ESG backlash.

I. Executive Summary

The public conversation around ESG fatigue belies a more pragmatic market reality. Adjusted for sector tilts, sustainable strategies continue to perform broadly in line with peers. Long-term decarbonisation targets remain largely intact, while some near-term goals are being recalibrated due to policy uncertainty, higher rates, and uneven technology cost curves (for example, green hydrogen).

The task now is clear: evaluate credible transition plans through capital allocation, economics, and delivery—not slogans.

Three investor imperatives

1. Separate perception from data. Sector-neutral comparisons reveal that the “ESG underperformance” narrative is overstated.
2. Interrogate capex and returns. Follow the money—how much is being invested, where, and at what expected ROI.
3. Engage for credibility. Pressure-test policy dependencies, subsidy exposure, unscaled technologies, and physical-risk resilience.

II. Performance Myth-Busting

• Headline underperformance stems largely from sector composition, not inherent ESG drag.
• When controlled for sector bias, sustainable portfolios can perform comparably to the market—particularly in Europe, where disclosure standards and governance discipline are strongest.

III. Targets: What’s Really Changing

• Near-term targets are being moderated amid regulatory ambiguity (the U.S./EU competitiveness agenda), elevated discount rates, and high-cost industrial decarbonisation.
• Long-term 2040–2050 goals remain largely intact. Adjustments are concentrated in energy and industrial names, not a wholesale retreat.
• The emerging pattern suggests back-end-loaded progress: slower early years, accelerating as technologies mature and economics improve.

IV. How to Judge a Credible Transition Plan

• Capex intensity and mix: proportion of total capex directed to transition, and expected returns versus legacy businesses.
• Unit economics: are the returns competitive, or merely compliance spend?
• Dependencies: policy durability, subsidy exposure, supply-chain feasibility, technology readiness.
• Disclosures and tools: SBTi validation and “green capex” frameworks help, but data remain inconsistent—underscoring the need for active engagement.
• Resilience and adaptation: physical-risk management is now material in developed markets; adaptation strategies can no longer be optional.

V. Product Architecture: From Theme to Integration

Post-2021, climate-thematic fund launches have slowed and AUM stabilised. Managers are pivoting toward broad ESG integration and sector-neutral frameworks to avoid factor concentration.

Two investable lenses are gaining traction:

1. Solutions and services across multiple sectors—beyond pure-play “clean tech.”
2. Transition-management leaders within high-emitting sectors—companies with credible plans, disciplined capex, and improving ROIC.

VI. Infrastructure—but Different

Energy-transition assets now blend infrastructure and technology risk.
Managers are tightening guardrails to maintain exposure to physical capital while avoiding too-early-stage technologies. The skill set required to underwrite these assets is shifting, and LP education has become critical: transition exposure is not utility-like risk.

VII. Governance, Horizons, and Engagement

• Private markets maintain 5–7-year hold periods with exits planned from the outset.
• Public markets favour 3–4+-year engagement cycles—reducing tactically, staying strategically.
  Sustained stakeholder alignment is key to embedding sustainability through leadership turnover and market cycles.

VIII. Net Zero vs Reality Checks

Current policy pathways still imply 2.7–3.0 °C warming trajectories, making adaptation and resilience integral to corporate strategy. While the language of net zero and 1.5 °C remains essential for coordination, real progress must be tracked through cash-flow metrics, cost curves, and capacity additions.

IX. Questions for Management (Fast Diligence)

1. What percentage of capex is transition-linked this year and next—and what IRR is expected versus core operations?
2. What are the top three execution bottlenecks (policy, permitting, supply chain, technology)?
3. Where are the physical-risk hotspots, and what adaptation measures are funded?
4. If near-term targets changed, what moved—and why is ROIC improved under the new trajectory?
5. What evidence exists of customer or regulatory pull (contracts, incentives) that de-risk uptake?

Note) The above detailed summary was put together with the help of AI and reviewed by a human being, me.

About Obsidian Odyssey

Obsidian Odyssey explores the intersection of capital, consciousness, and long-term stewardship. Subscribe for weekly executive reflections on sustainable investing, leadership, and the future of capitalism — written for CIOs, portfolio managers, and next-generation capital architects.

→ Subscribe to Obsidian Odyssey