Why the energy transition is becoming an investment transition

The energy transition is no longer only a story about turbines, solar panels and electric cars. It is increasingly a story about capital: who gets it, what price they pay for it, and which assets investors decide no longer deserve it, according to Kate Elliot, Head of the Responsible Investment Centre of Excellence, Rathbones.

The International Energy Agency expects global energy investment to reach $3.4tn in 2026, with clean energy and electricity infrastructure accounting for $2.2tn of that total, almost double the level directed towards fossil fuels. BloombergNEF data also points to the scale of the shift, with electrified transport attracting $893bn in investment in 2025, renewable energy $690bn and grids $483bn.

Elliot says: “This does not mean the world has neatly switched from hydrocarbons to renewables. It means the marginal dollar is changing direction. Electrification of transport, heating and industrial processes was a key theme running through discussions at this year’s London Climate Action Week, with investment in electricity grids identified as the catalyst that could accelerate decarbonisation.”

Geopolitics and concerns over energy security are reinforcing the investment case for electrification and renewable energy. Recent disruption in the global oil market has challenged the argument that renewable energy is the more unreliable option, while China’s latest five-year plan has reaffirmed its ambition to build a “new type energy system” in which wind and solar become the mainstay of its power mix.

Elliot says: “For investors, even those driven purely by short-to-medium term financial considerations, the balance is beginning to tip in favour of clean-tech. Policy, technology, customer demand and cost curves can alter the value of an asset before the end of its expected life — the concept known as stranded assets.”

“The risk is not confined to energy companies,” Elliot adds. “Climate-related risks, whether linked to the energy transition or rising physical risks, need to be considered across a wide range of sectors — from real estate to transport and agriculture. A car plant optimised for internal combustion engines, a steel mill dependent on blast furnaces, a property portfolio exposed to flood risk or agricultural supply chains impacted by water scarcity can all be at risk due to climate change.”

Elliot concludes: “This transition is unlikely to play out neatly. We will not see fossil fuels disappear tomorrow, nor every renewable project be a surefire bet for strong returns. But investors ignore climate risk and the ongoing reorganisation of capital around electrification, resilience and the energy transition at their peril. The energy transition is not simply changing what powers the economy. It is changing what the economy is willing to fund.”