How private credit can drive the net zero transition

Over the coming decades, the transition to net zero is likely to require tens of trillions of dollars of investment. This investment is set to span a wide spectrum of sectors, geographies and risk profiles.

The nature of the assets means that, for the foreseeable future, the majority of investment opportunities will be found in private markets. Private credit has been funding transition-related assets in Europe, North America and Australasia for many years. We expect the investment universe to expand to include more emerging sectors as they mature.

Transition credit represents a potential opportunity for investors to:

1. Invest at scale
2. Seek potentially attractive risk-adjusted returns by taking a strategic view of a broad opportunity set
3. Aim to diversify risk drivers with assets not readily available in public markets
4. Support construction of the infrastructure of the future while potentially mitigating downside risk through structural protections

The sheer magnitude of capital requirements for the net zero transition represents a historic opportunity for private credit investors. The range of investable assets is likely to continue growing rapidly in the coming years, and private credit is in our view well positioned to fill funding gaps left by banks in the space between the well-served investment grade market and early-stage growth.

To seek to generate attractive risk-adjusted returns, we advocate considering a broad range of opportunities, diversifying risk drivers and remaining focused on asset-level analysis.

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