Positioning Portfolios for the Energy Transition

This research report presents an analysis of over 37,000 mutual funds and exchange-traded funds (ETFs) globally, focusing on the relationship between transition-risk characteristics and historical financial performance. The report introduces a categorization framework that maps funds based on two core pillars of the MSCI Energy Transition Framework: transition pressure and transition readiness. The findings indicate that funds with higher MSCI Energy Transition Scores were positively correlated with historical returns, particularly for climate- and transition-labeled funds. The report outlines four categories for fund positioning: Transition Resilient, Transition Passive, Transition Prepared, and Transition Exposed, each reflecting different levels of exposure to transition pressures and readiness. Additionally, the report discusses the correlation between the Energy Transition Framework and other climate metrics, emphasizing the importance of managing transition risks while achieving decarbonization objectives. This framework aims to assist institutional investors in making informed decisions regarding portfolio construction and manager selection.