The Low-Carbon Transition in Private Markets

Introduction

The low-carbon transition is underway, a historic change in the world around us. Accelerated by policy incentives, new technologies and shifting consumer preferences, the transition is one of the major trends that will shape the economy of the future.

It represents an enormous opportunity for investors.

The BlackRock Investment Institute estimates that investment in the world’s energy system will increase to US$3.5 trillion a year this decade, up from US$2.2 trillion in recent years. By the 2040s that annual figure may be as much as US$4.5 trillion. And that’s just the most direct effect of the transition; there are also downstream opportunities in a wide range of sectors from transportation to manufacturing to real estate and beyond.

From an investment perspective, what do you find most exciting about the low-carbon transition today?

David Giordano: I spent my career in renewables and in the energy markets, and it’s really exciting to be in this age of full implementation. The low-carbon transition has been moving forward for a long time now – the last 20-plus years. But this acceleration, and the full commitment throughout the ecosystem of implementation in infrastructure and across the broader economy is something new.

Thomas Mueller-Borja: I agree that it’s a big moment for investors. The transition to more sustainable buildings is the biggest structural change to real estate since the electrification of buildings in the 1920s. It can be terrifying to some investors, but we see it as an incredibly exciting investment opportunity.

Sonia Rocher: I find the role that we can play as investors to help companies accelerate their transition journey very exciting. A lot of our limited partners want us to engage with companies as we have the expertise to help them on the journey. It’s exciting to see that it’s a collective push across LPs, general partners, corporate management teams and consumers.

The middle market forms around 50% of the economy and contributes roughly 50% of carbon emissions.¹ Yet most of these companies don’t know their emissions or have access to carbon reporting. This process takes time and can be expensive.

Medium-sized companies are starting to recognize that being part of the low-carbon transition is important for their business, especially as larger companies are already taking meaningful steps. These companies need partners to help start the journey and take necessary steps towards change. It starts with the basics and first is to understand their carbon footprint.

TMB: The transition in U.K. real estate is going to build momentum as we get closer to that 2030 deadline, because most landlords think seven years is a long time. But actually, to do what they need to do they need to start now.

The built environment contributes 40% of greenhouse gases, so it's obviously a big part of the solution. Reducing those emissions is the real opportunity.

DG: In infrastructure, we're thinking about the opportunity set at a global scale. At the distribution level, you're seeing behind-the-meter solar, plus battery storage, and the off-take contracts associated with that. On the energy transmission side, we'll continue to see opportunities to facilitate more efficient delivery of those electrons. At the same time, we’ll see a broader decarbonization of electricity generation.

Scaling up those new technologies to meet the massive commercial needs of the low-carbon transition necessitates a huge amount of investment in everything from generation facilities to the business of energy transmission and distribution, as well as the efficiency-enhancing technology for end users.

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