Transition assets: Institutions search for more clarity, framework
Increasing demand for sustainable investments is driving institutional investors to push for the standardisation of transition assets -- a move they deem critical for unlocking further capital.
“A lack of common understanding of, or language, around what ‘transition’ means” is holding many investors back, noted David Smith, senior investment director of Asian equities at abrdn.
Smith emphasised that a standardised framework is essential not only for guiding investment decisions but also for shaping how investors engage with companies on sustainability goals.
Such a framework would facilitate clearer communication and accountability in achieving long-term environmental impacts.
This call for clarity reflects growing concerns over “transition washing”, according to Smith, and the desire for frameworks like the Singapore Taxonomy to help investors better understand, quantify, and manage transition assets.
A 2023 report by the Global Sustainable Investment Alliance (GSIA) indicates that sustainable investments now account for over $35 trillion globally, with transition assets comprising a significant portion of this growth.
“As the Taxonomy, and other similar frameworks, get traction, I think we’ll see a lot more focus on transition from both asset owners and asset managers,” Smith pointed out.
A BROADER OPPORTUNITY SET
While renewable energy remains a core focus, asset managers are seeking a wider range of transition assets, from green real estate to climate-resilient infrastructure.
Tatjana Greil-Castro, portfolio manager at Muzinich & Co, emphasised, “The net can be cast much wider than what meets the eye.”
She highlighted diverse opportunities, such as retrofitting buildings to enhance carbon efficiency and nature-based solutions like mangrove restoration and regenerative farming. This expanded view of transition assets allows investors to tap into a variety of high-impact projects beyond traditional energy sources.
Source: BlackRock’s illustrative example on Sustainable and Transition Investing
Luke Layfield, head of portfolio management in private markets at Aviva Investors, shared that for asset owners looking to invest in transition assets, the logistics and prime office sectors have strong fundamentals, driven by a robust occupier market, and should perform well.
"We see opportunities to invest in providing power for residential and corporate tenants at a local level, through renewable-energy generation, battery storage and energy- efficiency measures. This theme will attract more attention in the near future," he added.
Such collaborative approaches can also help offset some of the perceived risks that discourage capital flows into emerging markets, potentially broadening the scope for impactful investments, according to her.
Also read: Temasek-backed Pentagreen eyes five themes in blended finance
HOLISTIC ACCOUNTING
The environmental impact of transition assets extends well beyond their operational emissions, prompting investors to adopt comprehensive carbon accounting frameworks that assess full lifecycle emissions.
Layfield underscored the significance of “measurable outcomes” and the need for a “whole-life” carbon accounting approach that considers emissions generated during the construction, operation, and end-of-life phases of an asset.
“Focusing solely on operational emissions can have unintended consequences,” Layfield noted.
“For example, while a wind farm will contribute to avoided emissions during its operational life, the activity of manufacturing, transporting, installing, and eventually dismantling wind turbines still generates carbon (as the steel, transport, and cement industries have not yet been decarbonised),” he added.