According to the International Energy Agency, the global economy needs to invest $4.5 trillion annually by 2030 in order to limit climate change to 1.5C*.

This is a 5x increase from the current yearly spend and, as noted climate economist Nicholas Stern commented, is “the biggest capital reallocation since the Industrial Revolution”.

In this short Q&A, Albane Poulin, Head of Private Credit at Gravis, discusses the investment required for the global energy transition and the different approaches investors can take. She also reviews geopolitical risks and highlights the steps Gravis and other investors can take to mitigate them.

Substantial investment across four key sectors is required to enable the energy transition:

1. Power: There is a pressing need to expand renewable energy capacity, upgrade and extend electricity transmission infrastructure, and develop more flexible generation systems that can provide backup during periods of low solar or wind output. Assets such as thermal backup plants (e.g., gas peaker plants) will play a critical role.
2. Mobility: This includes the electrification of transport, transitioning to electric vehicles (EVs), as well as electric trains and buses.
3. Buildings: This sector requires the electrification of heating systems, particularly through the installation of heat pumps in residential and commercial buildings.
4. Industrials: Hard-to-abate sectors such as food production, manufacturing, paper, steel, and cement will require significant investment in carbon capture technologies. Some industries, such as chemicals, may not be able to fully decarbonise and will need tailored solutions to manage residual emissions.

Infrastructure assets are essential to modern society. Energy transition infrastructure, in particular, benefits from strong policy support, making it an attractive proposition for investors. These assets are typically uncorrelated with broader economic cycles and offer stable, long-term income, often with inflation-linked returns. As a result, they can form a robust foundation for diversified investment portfolios.

The energy transition also presents a growing pipeline of resilient, attractive, and diverse opportunities. However, it is essential that environmental, social, and governance (ESG) considerations are integrated into all investment decisions, especially as the urgency of the climate crisis intensifies.

Investors can approach the energy transition in two complementary ways. The first is through a risk lens, evaluating how climate-related risks, such as transition risks (e.g., the potential for assets to become stranded) and physical risks (e.g., flooding, drought, wildfires), could materially impact infrastructure assets.

The second approach involves a more proactive stance: aligning investments with specific objectives that support the energy transition. The Sustainable Finance Disclosure Regulation (SFDR) includes Article 8 funds, which promote ESG characteristics, and Article 9 funds, which have a specific sustainable investment objectives. Both approaches have different benefits and are suitable for different investors. Article 9 strategies are more targeted, focusing exclusively on energy transition assets; however, they come with more complex and potentially burdensome reporting requirements. In contrast, Article 8 allows for greater portfolio diversification, providing flexibility that may be appealing to a broader set of investors.

Yes, geopolitical risks are relevant, particularly for infrastructure projects reliant on global supply chains or imported materials. Trade tariffs, for example, can increase project costs and cause delays.

The impact is sector- and even technology-specific. Tariffs on raw materials can drive up the cost of batteries, wind turbines, and solar panels, especially when these materials are sourced from geopolitically sensitive regions. Critical minerals for batteries, such as lithium, cobalt, and nickel, and materials like aluminium and copper, are used in grid electrification and heat pumps. When subject to price increases and volatility, this can affect project feasibility, potentially delaying energy transition goals. Trade tariffs also directly affect trade-dependent industries, such as ports.

Another indirect effect could be the rising cost of borrowing. Since debt constitutes the largest portion of capital structure in these projects, any increase in borrowing costs could reduce deployment in new energy transition sectors. Infrastructure assets typically have low-risk profiles and predictable cash flows, making them suitable for high leverage, so they are highly sensitive to the cost of debt on day one.

In the U.S., for example, the cancellation of renewable tax credits under a second Trump administration could significantly slow investment. Similarly, trade-driven inflation and labour market concerns are delaying expected interest rate cuts. Additionally, Moody’s recent downgrade of the U.S. to Aa1 could raise borrowing costs for the government and undermine confidence in the economy, creating a snowball effect that could slow down the development of new projects reliant on debt financing.

That said, these geopolitical impacts have minimal or no effect on projects that are already operational and already financed with fixed-rate debt. Gravis’s private debt investment strategies focus on operational infrastructure assets with contracted cash flows and delivering essential services, which are typically insulated from cross-border trade risk and provide a defensive, inflation-protected return profile.

To mitigate risks associated with supply chains, material cost volatility, and borrowing costs for new projects, infrastructure lenders like Gravis conduct extensive due diligence before committing capital.

We rigorously test each project’s financial performance under a range of scenarios, including bearish cases that account for high inflation, commodity prices, and rising interest rates. Our analysis incorporates a detailed independent technical assessment of the project, and we carefully review all contracts (construction, operation and maintenance, offtake agreements). Additionally, we ensure the project complies with all necessary licenses, permits, and regulations. This is a comprehensive and detailed process that requires substantial expertise and resources.

With 15 years of experience as a specialist infrastructure lender through GCP Infrastructure Investments Limited, Gravis offers complex and tailored financial solutions that align with the risk profiles of the assets. For sectors with more stable cash flows, we are open to providing mezzanine financing with higher leverage.

For newer sectors or technologies, we structure bespoke repayment schedules and assess exit value carefully. Alongside a senior note, we can also offer a profit participation loan note (PPLN), which entitles us to receive remuneration if the project generates a profit. If the borrower fails to pay the due remuneration, we have the right to call on the guarantees securing the PPLN or convert it into equity. This structure offers more flexibility to the lender and is particularly beneficial for early-stage projects where reduced interest costs are essential. For lenders, it also offers potential upside.

These more complex transactions allow us to achieve higher yields compared to our peers, while maintaining a low loss ratio within the asset class.

*Source: IEA: Clean energy investment must reach $4.5 trillion per year by 2030 to limit global warming to 1.5°C | World Economic Forum

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