Higher for longer: can transition investing survive inflationary headwinds?

In a forecast published this week, the World Bank estimated commodity inflation for the year at 23%, courtesy of the war in Iran depleting oil inventories and an El Niño looming large over food supply. In the UK too, inflation is expected to remain above target as the new year rolls in.

Rising inflation expectations sit against a backdrop of asset owners pivoting their portfolios towards the energy transition. Net Zero Investor's Climate Capital Allocation Index, published last week, found a widening appetite to invest in transition assets – particularly in infrastructure. Higher-for-longer inflation has implications for this appetite. While capital intensity implies sensitivity to higher prices, longer investment horizons and cost reslience could make transition assets attractive under inflationary pressure. 

Private Markets and Portfolio Construction | 5 November 2026 | Central Court, London

Long-term value

Transition investing, particularly in the energy sector, tends to be capital intensive. Melanie Beyeler, global head of sustainable investing at Swiss bank EFG, says capital intensity implies higher inflation sensitivity for companies deploying these assets. 

“When you are invested in areas where you see high capex and investment needs, long-term growth stories, inflationary environments are generally hurtful”, she says, noting concerns over rising cost of capital and inputs that companies rely on.

Beyeler runs a transtion equity fund at EFG. Citing the rising demand for transition funds, she says investors have come to expect a higher degree of selectivity in investment decisions. 

She points out that while transition investing has higher capital intensity, it also brings longer investment horizons. “I think we need to pay attention to short-term developments, but then also look through the cycles and understand the long-term drivers”, Beyeler says. 

The capital intensity of transtion assets is particularly prominent in infrastructure strategies. Analysis from Standard Life and Santander found that the UK’s energy transition requires nearly £511bn of infrastructure investments through to 2040. Assets such as networks, grids, generation and storage account for the bulk of the investment needed. In particular, the research found evidence of investor interest moving beyond generation assets into transmission and grids. 

"Transmission infrastructure already possesses many of the characteristics institutional investors seek: long-dated assets, relatively predictable cashflows and an essential role in supporting both energy security and the UK's clean power ambitions", commented Manuel Dusina, head of real assets at Standard Life. 

Transition infrastructure

Dusina's explaination for investor interest in transmission infrastructure brings into focus the long-term investment horizons that separate transition assets from cyclical themes. In a recent note, Duncan Hale, lead portfolio manager at Schroders Greencoat echoes this sentiment. Hale reckons transition infrastructure tends to offer strong returns under inflationary conditions.

“The cashflows, and so ultimately returns, generated by energy transition infrastructure have performed well in inflationary regimes compared to traditional equities and bonds – and even compared to diversified infrastructure”, Hale writes.

Hale argues this comes down to energy prices driving inflation – which energy transition assets capture without being exposed to rising cost pressures linked to fossil fuels.

Infrastructure fund manager IFM Investors has also published analysis reaching similar conclusions. IFM’s recent survey of 700 investment professionals found that European institutional investors are looking to increase transition infrastructure exposure. Commenting on the research, IFM Investors’ global head of sustainable investment Maria Nazarova-Doyle said the appetite has persisted despite macroeconomic headwinds.

“The notable finding is not that European investors focus on sustainability. It is that their focus remains exceptionally strong despite ongoing geopolitical tensions, inflation concerns and broader market uncertainty”, she notes.

Higher-for-longer inflation brings macroeconomic headwinds into the transition investment conversation. However, investor appetite for transition assets has thus far increased despite the outlook, particularly in asset classes characterised by long-term horizons, cost reslience and the potential for hedging against rising prices.