As the energy transition accelerates, investors are now increasingly turning their attention to outcomes rather than labels. From financing the transition through bond markets to upgrading and decarbonising existing buildings, Kris Atkinson, Fixed Income Portfolio Manager at Fidelity International, outlines how purpose led investment is shaping outcomes in the real economy while supporting resilient, long term returns.
Sustainable investing has evolved beyond exclusions and portfolio alignment towards a more demanding test: whether capital deployed today delivers measurable change tomorrow.
The scale of challenges facing the global economy – from climate change and biodiversity loss to ageing infrastructure – cannot be addressed through public funding alone.
Private capital therefore has a critical role to play, provided it is directed towards financing transition, upgrading existing assets and supporting long‑term investment in the real economy.
Investors have also become more sceptical of approaches that improve portfolio‑level metrics without altering outcomes on the ground.
Reducing reported emissions or tightening benchmark alignment may make portfolios look cleaner, but this does not automatically translate into lower emissions, greater resilience or better resource use.
As a result, attention has shifted towards strategies that can demonstrate tangible outcomes alongside robust risk‑adjusted returns.
This shift is playing out most clearly in two areas. Fixed income markets offer a practical way to finance the transition, combining scale with the ability to direct capital and engage issuers over time.
Real estate, meanwhile, is where much of the transition must be delivered, as decarbonising existing assets – rather than focussing solely on new construction – will be critical to progress.
How bond markets can finance the transition
Bond markets are uniquely positioned to support purpose‑led investing at scale.
They are larger than equity markets, span a broad range of issuers and play a central role in financing infrastructure and capital expenditure.
Many sectors critical to the transition rely more heavily on debt markets than equity markets, making fixed income a key transmission channel.
A defining feature of bond markets is the ability to direct capital.
Labelled bonds allow proceeds to be allocated to specific projects, while securitised and project‑level structures can channel financing to discrete assets such as transport, energy or water infrastructure.
Engagement also plays an important role alongside capital deployment.
Regular issuance creates repeated opportunities for dialogue with management teams, which can be particularly impactful in sectors where equity engagement is limited.
This engagement‑led approach also shapes how exclusions are used.
Mechanically excluding higher‑emitting sectors may reduce portfolio emissions, but it risks diverting capital away from companies that need financing to invest in transition.
The water sector shows how this plays out in practice. With around £96bn of investment expected between 2025 and 2030, and many companies privately owned, bondholders play a critical role in both financing investment and engaging on environmental performance and long‑term planning.
Credibility ultimately comes down to evidence. “Following the money” makes it easier to see where capital is actually being deployed.
Real estate and the challenge of decarbonising
Real estate is central to the transition because much of the challenge is embedded in buildings already in use.
Buildings account for around 60% of city emissions, while real estate represents approximately 36% of Europe’s greenhouse gas emissions.
Yet only around 20% of buildings across major European cities hold a green certificate.
The challenge is structural rather than cyclical. With around 90% of today’s buildings expected to remain in use by 2050, the transition cannot be delivered through new construction alone.
Refurbishment must therefore sit at the heart of decarbonisation efforts. Renovation rates remain far too low, creating obsolescence risk for inefficient assets but also opportunity for investors able to act early.
Decarbonising buildings is increasingly an economic imperative. Energy costs are a growing component of occupier expenses, while demand for efficient, low‑carbon space is rising amid constrained supply.
Measurement is critical: focusing on Primary Energy Demand (PED) allows investors to assess how refurbishment translates into lower energy use and improved asset economics.
Taken together, these factors point to a clear opportunity to deliver climate impact alongside attractive financial returns.
Occupier demand for energy‑efficient buildings is being driven by corporates pursuing their own net‑zero ambitions, where the performance of the building they occupy is often central to meeting those targets, as well as by a growing focus on reducing energy costs.
With the supply of genuinely energy‑efficient space still constrained, this supply-demand imbalance is increasingly reflected in stronger demand and higher rents for well‑positioned assets.
Turning capital into measurable outcomes
Across both bond markets and real estate, the common thread is that intent must be matched by execution.
Purpose‑led capital is defined not by labels, but by how capital is deployed, monitored and challenged over time.
This places a premium on engagement and accountability, and on working with existing systems rather than relying on exclusion.
By combining the scale and engagement potential of bond markets with the tangible, asset‑level impact achievable in real estate, investors can play a meaningful role in driving real‑world change – while continuing to focus on resilient, long‑term returns.
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