![Partner Insight: How vital are fossil fuels to the energy transition?](https://image.chitra.live/api/v1/wps/bed8f23/19703891-1df6-4aad-825a-6de36f26b25f/6/iStock-1360951108-679x419.jpg)
Net zero has reshaped the investment landscape. As a result, fossil fuel holdings, once seen as reliable cornerstones of a diversified portfolio, now face intense scrutiny. Investors grapple with a stark choice: complete divestment or face potential portfolio obsolescence. However, this binary approach is overly simplistic.
A more nuanced strategy that acknowledges the complexities of the energy transition is needed, according to Raj Shant, managing director at Jennison Associates. For a cleaner, more sustainable future, investors should be pragmatic about how progress must be made and the potentially uncomfortable compromises that may be required in the near term.
"How much progress have we made?" asks Shant. "With all the noise and the people gluing themselves to the M25, how much have we actually made? Very little."
To accelerate progress, he argues that lower carbon fossil fuels, like natural gas, should be viewed as ‘transition fuels' able to displace far dirtier and more carbon-intensive fuels like coal in generating electricity. Recognizing this powerful incremental potential within the fossil fuel category, Shant explains, enhances investment opportunities today while aiding the wider energy transition.
Although it is still a non-renewable fuel, gas is far less polluting than coal, which is the most widely used fuel for generating power. Purists may not consider supplanting coal with gas to be ideal, but such transitions over the past 20 years in the US and Europe represent major progress in the context of the journey to net zero. Shant wants to see progressive fossil fuel displacement spread.
"If we were to make a shift from coal to gas, we'd make a massive amount of progress," says Shant. "You then want to be thinking about that globally because in India and China they're still building coal-fired power stations because they don't feel comfortable or confident that they would get the supplies of natural gas if they shifted."
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