IIF Authors

Status: Will be live at 06/07/2024 14:40

Climate Crunch: A Closer Look at the Transition Risks of Net Zero

As investors increasingly recognize the financial wisdom of embracing sustainability and a net zero economy, the opportunities and challenges inherent in this journey are becoming more and more apparent. We are pleased to offer in collaboration with our research partner, Pictet Asset Management, valuable insights into the potential risks and hazards that could come alongside the energy transition.

Energy transitions have historically been complex and unpredictable involving uncomfortable compromises and uncertain payoffs.

Increased investment for the transition will require higher levels of borrowing—growing debt burdens could have a negative effect on countries’ credit profiles and dampen global growth prospects.

The early years of an energy transition could usher in “greenflation” and increases in unemployment resulting in weaker economic growth.

There is a risk of a potential inefficient deployment of capital that could lead to potential asset bubbles—and while the potential tactical investment opportunities could arise, there is also the risk that these asset bubbles could result in more frequent and severe bouts of market volatility.

By fully understanding the risks and opportunities associated with the energy transition, investors can make informed decisions to navigate the evolving landscape of necessary transition investment, ensuring both financial resilience and positive environmental impact.