The global energy system is undergoing a profound and unprecedented transformation, driven by the dual imperatives of tackling climate change and ensuring energy security in an increasingly uncertain geopolitical environment.
This shift is not a temporary trend but a fundamental and necessary restructuring of energy production and consumption systems, underpinned by renewable energy investments that reached $2trn in 2023, almost double the spending on fossil fuels.
Beyond environmental benefits, this transition supports job creation in clean energy sectors, boosts GDP, and reduces dependence on volatile fossil fuel markets.
The green transition holds the potential to become the defining growth story of the century. However, realising this promise requires coordinated global efforts, robust policy frameworks, and the efficient mobilisation and deployment of green finance to accelerate progress and ensure equitable outcomes.
There are two main drivers of this change:
- The climate crisis/global warming
The increasing frequency and intensity of extreme weather events, coupled with rising global temperatures, have catalysed international urgency for action. The 2015 Paris Agreement, signed by 196 nations, remains a cornerstone of global climate policy, committing signatories to limit warming to below 1.5°C. However, as outlined in the World Energy Outlook 2024 by the International Energy Agency (IEA), current policy trajectories point to a 2.4°C rise in global temperatures without further intervention.
A rapid shift to low-emission energy sources is essential to mitigate these risks. Clean technologies, which are becoming increasingly cost-effective, offer a clear alternative to the continued reliance on fossil fuels. As energy history shows, locking in fossil fuel use may temporarily depress prices, but this cycle inevitably reverses, with higher costs and severe environmental consequences. In contrast, renewables offer stability, reducing exposure to the vagaries of commodity markets while delivering lasting benefits for people and the planet.
- Energy security amid geopolitical risks
Geopolitical tensions, particularly in energy-producing regions like the Middle East and Eastern Europe, underscore the fragility of the global energy supply chain. The IEA highlights that once installed, renewable energy systems offer long-term energy independence. For example, one shipment of solar panels generates as much electricity as 50 shipments of LNG or 100 shipments of coal, fundamentally reshaping global trade dynamics.
Global cooperation and policy commitments
International collaboration is critical to accelerating the energy transition.
Even if more needs to be done, recent years have seen significant advancements in global energy policies:
- COP28 Agreements
- Transition away from fossil fuelsTripling renewable energy capacity by 2030Doubling energy efficiency improvements
- Accelerating the deployment of low-emission technologies, including renewables, nuclear power, and carbon removal solutions
In addition, the presidency of COP29 has introduced three pivotal pledges:
- COP29 Initiatives
- The Global Energy Storage and Grids Pledge: Aims to increase global energy storage capacity to 1,500 GW by 2030, including 1,200 GW in battery storage. (It also targets the construction or upgrading of 25 million kilometres of electricity grids by 2030, with an additional 65 million kilometers by 2040 (90 million kilometers in total) addressing the long-standing underinvestment in transmission infrastructureThe Green Energy Zones and Corridors Pledge: Focuses on developing green energy corridors to efficiently transport renewable energy from production hubs to consumption centers
- The Hydrogen Declaration: Establishes global standards and regulations for clean hydrogen production and its derivatives, fostering innovation in this critical area
No transition without transmission
A sustainable energy transition is impossible without robust transmission infrastructure. While investments in renewable power generation have surged, grid and storage capacity remain critical bottlenecks. In 2023, 670 GW of new capacity was connected to the global grid—a historic milestone – but insufficient capacity blocked the deployment of 3,000 GW of untapped renewable energy.
Addressing this challenge requires coordinated efforts to enhance grid resilience and flexibility, ensuring systems can handle growing electricity demand and variable generation. Additionally, investments in digital security are essential to safeguard grids from the increasing threat of cyberattacks.
But this requires investment.
Capital is critical for transition
One of the clear takeaways from COP29 is the urgent need to mobilise capital more effectively to support a just and equitable energy transition. Four clear actions have emerged:
First, incentivising climate solutions – Governments must create favourable conditions for investments in climate-friendly projects.
Second, mandating climate disclosures – Transparent reporting allows investors to make informed decisions.
Third, de-risking investments – Policies that reduce financial risks associated with clean energy projects will attract broader participation from the private sector.
Finally, providing clear transition pathways – Decarbonisation roadmaps aligned with national goals will enable investors to align their portfolios with sustainable objectives.
What does it mean for investors?
This systemic shift highlights several key considerations for investors:
- Opportunities in Decarbonisation: Industries integrating sustainability are poised for growth, offering investment opportunities in innovative supply chains, sustainable materials, and infrastructure. Businesses failing to adapt face increasing risks of obsolescence.
- Physical and Transition Risks: Climate change presents physical risks (e.g., extreme weather disrupting operations) and transition risks (e.g., regulatory and market shifts). Companies investing in resilience and embracing sustainability are better positioned for long-term success.
- Sustainability Metrics as a Financial Imperative: Regulations like the Corporate Sustainability Reporting Directive (CSRD) are tying corporate performance to ESG factors. Companies leading in transparency and proactive ESG strategies are becoming more attractive investment options.
- Capital Mobilisation for the Green Transition: COP29 underscores the need for targeted actions to unlock capital, including incentivising climate solutions, mandating sustainability disclosures, de-risking investments, and providing clear transition pathways.
For investors, the energy transition offers a transformative opportunity to align portfolios with global sustainability objectives while driving long-term value creation in a rapidly evolving market.
