Investors embrace transition investing despite risks, gaps in benchmarks

87% of high-net-worth investors in Asia are drawn to transition investing.

Transition investing is gaining momentum in Asia as wealthy investors look for opportunities that not only deliver returns but also drive the shift to a low-carbon economy. A new Standard Chartered study reveals that 87% of high-net-worth investors in the region express appetite for transition investing, alongside continued demand for sustainable investments.

Eugenia Koh, Global Head of Sustainable Finance Wealth and Retail Banking at Standard Chartered Bank, said the trend reflects a growing recognition that decarbonisation is not limited to “green” sectors such as renewables, but also applies to industries traditionally considered high carbon.

“Transition investing is actually a subset of sustainable investing, so it refers specifically to investing with the ambition of supporting and enabling the transition to a low carbon economy,” Koh said. “With transition investing, it also includes investing in the high carbon sectors, but in companies that are leading in their plans to decarbonise or to move to a low carbon economy.”

She explained that this could include leaders in heavy industries like steel and cement that are ahead of peers in decarbonising their operations, as well as companies that enable the shift, such as scrap steel producers.

Koh noted that many wealthy clients in Asia have built their fortunes in carbon-intensive sectors and are acutely aware of the risks and opportunities that come with the global energy transition.

Beyond competitiveness, there is also a personal motivation for some. But despite the interest, transition investing remains at an early stage. Concerns include the perception of higher risk compared to traditional investments, the absence of clear benchmarks, and fears of lower returns.

Looking ahead, Koh expects transition investing to become a mainstream part of portfolio selection. “If we think about where sustainable investment has gone with kind of its ESG scores and metrics, a lot of that is being baked into the investment process, and we see the same happening with transition investing,” she said.

She added that the core material factors defining how companies transition will increasingly be scrutinised by asset managers and “mainstream into the way they select their portfolios.”