Legal & General Says Energy Transition is ‘Alive and Well’

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(Bloomberg) — Investors are underestimating the pace of the energy transition, putting both financial returns and climate goals at risk, according to Legal & General Group Plc.

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In a report published Monday, the UK insurer and asset manager warned against what it describes as a widespread but mistaken belief that the shift to a low-carbon economy has stalled. After updating the assumptions behind its climate scenarios, L&G concluded that “while there are undoubtedly some headwinds,” its analysis shows “the direction is clear: The global economy will decarbonize.”

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“There has been this market narrative developing in the background that essentially the energy transition has slowed, has screeched to a halt, and perhaps is even heading into reverse in some places,” Nick Stansbury, head of climate solutions in L&G’s asset management unit, said in an interview. “From what we can see of the data and the evidence in the modeling that we’ve done there, the energy transition is alive and well.”

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With the Trump administration openly hostile to climate action and renewable energy, and an artificial intelligence-driven boom fueling demand for natural gas to power data centers, some investors have lowered their expectations for the speed of the low-carbon transition. 

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At the same time, dramatic declines in clean energy costs and the growing electrification of key industries, especially transportation, mean the shift away from fossil fuels is continuing despite the political headwinds.

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L&G said a bias toward short-term investing, with the average equity holding period hovering at about a year, has left some investors blind to the longer-term structural shifts posed by the transition, potentially leading to a misallocation of capital.

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“The energy transition is a question of when, not if, and if you don’t look at what the data is telling us about the long-term opportunities, there is a real risk that, as an investor, you may miss out on one of the most exciting investment opportunities of our generation,” he said. “We are very much interested in challenging the market narrative because that will be part of the process of monetizing the investment opportunities that we see.”

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L&G has developed a series of climate scenarios that project future warming and its impact on asset values under varying policy and technology assumptions. The firm said it updated the models over the past year, refreshing the underlying data and revisiting key assumptions.

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L&G said clean-energy deployment and electric-vehicle adoption have advanced faster than it anticipated, suggesting current levels of coal, oil and gas consumption are unlikely to endure. As a result, the firm’s “inaction” scenario, which assumes governments introduce no additional climate policies, now projects about 2.5C of warming above pre-industrial levels, down from 3C in its previous analysis. It also said keeping warming below 2C remains “achievable and affordable — for now.”

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Justine Schafer, head of climate modeling at L&G, said projected emissions under the firm’s inaction scenario have declined with each successive iteration. The 2026 version is the first to show global emissions peaking before 2030.

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Insights from the scenario analysis provide “a way of generating evidence-led insights that we can use in our investment process,” Stansbury said. It can be useful in identifying “where we want to put our capital and where we don’t want to put our capital,” he said.

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