Financial services and the energy transition: Fixing the system so capital can flow 

The role of financial services in the energy transition can be understood in simple terms: the sector allocates capital, and capital shapes the future. The challenge is far more complex. Markets are not designed for multi-decade transformation, and the system that determines where capital flows – the incentives, signals, rules and timelines – is misaligned with the scale and speed of change required. 

As 5B CFO Frank Paduch put it during our recent roundtable: “It’s not only about what institutions finance today, but also about what they deliberately choose not to finance.” Yet across the sector, progress remains uneven. Many institutions are navigating legitimate constraints – regulatory expectations, fiduciary obligations, earnings pressures – that can lead to cautious, incremental decisions rather than the more deliberate, strategic shifts that long-term transition pathways require. 

More than a leadership challenge, this is also a system design problem. And it is solvable. 

Momentum is building across the economy: large-scale battery storage, new distributed energy models, next-generation solar manufacturing, regional microgrids. These opportunities do not struggle for lack of ideas. They struggle because they sit at the intersection of emerging technologies, uncertain revenue models, infrastructure bottlenecks and evolving policy settings. Traditional capital allocation frameworks, designed around well-proven assets and stable market signals, are not yet calibrated to these conditions. 

As Paduch observed, these opportunities “require a different type of capital allocation and risk assessment,” one that places long-term transition risk, system value and interdependencies alongside short-term volatility. Even when the underlying economics are compelling, a first-time or unfamiliar-technology risk premium often inhibits institutional appetite. 

Superannuation funds are, in principle, the institutions best placed to invest over long horizons. Their mandates span decades, and they manage large, stable pools of capital. The challenge is less structural than interpretive: many funds take a conservative view of liquidity needs and fiduciary duty, favouring established asset classes even when a portfolio approach could accommodate more patient, transition-aligned investments. Yet the market already shows what is possible. Several funds hold long-duration unlisted renewable infrastructure, such as utility-scale wind and solar, without compromising liquidity or risk settings. These examples suggest the constraints are not fixed; they reflect governance comfort, risk appetite and investment narratives, and they influence the pace at which superannuation capital can shift. 

The energy transition will unfold over two or three decades, yet the institutional machinery that allocates capital typically operates over much shorter cycles. Shareholders track performance quarterly; CEOs often serve for under a decade; governments work on three-year terms; and many risk models still weigh short-term financial metrics more heavily than long-term climate and transition exposure simply because the tools, data and valuation frameworks continue to mature. 

These dynamics do not reflect a lack of ambition. Rather, they demonstrate how institutional and regulatory settings pull organisations toward shorter-term decision frames. The result is a coordination challenge: the desire to invest for future value is rising, but the system through which capital flows has not yet been fully adapted to the structural realities of the transition. 

Despite constraints, we are beginning to see what success looks like. It is encouraging. The Australian Government’s Capacity Investment Scheme is one example, providing long-term revenue confidence and risk-sharing arrangements that have accelerated private investment. The rapid build-out of large-scale battery storage offers another indication of what is possible when contractual structures, policy signals and financing settings align. 

As Paduch noted: “We now have a stencil for success. The challenge is to roll this out much faster across other areas.” 

Janet Torney reinforced this need. “We need to get the plumbing right,” she said at the roundtable. We need the structures that allow capital to flow and deliver to very different stakeholder requirements.” 

Fixing the plumbing requires progress on three fronts: 

• Policy certainty and calibrated risk-sharing. Public capital can absorb early-stage, technology or policy-related risks that private markets price inconsistently or highly. Well-designed risk-sharing mechanisms help unlock investment without displacing private sector discipline. 
• Scaling blended finance and transition finance. Blended capital structures, transition finance frameworks, loan guarantees and long-duration investment vehicles can reduce risk premiums and make innovative projects bankable. These mechanisms are emerging in Australia but require targeted scaling. 
• Governance and capability within institutions. Investment committees increasingly need climate and transition expertise, robust scenario analysis and risk models that incorporate system-wide and long-term exposures. These changes are already underway but will take time to embed. 

The transition requires leadership, but not the rhetorical kind. In this context, leadership means aligning governance, incentives and decision-making so that long-term value is not unintentionally traded away under short-term pressures. The panel emphasised the importance of consistency and follow-through. Leaders need to “walk the talk” and treat climate and transition risk as integral to financial performance and organisational resilience. Boards increasingly recognise this and, in many organisations, are pushing executives to think in longer timeframes and make decisions that are consistent across financing, underwriting and portfolio construction. 

Many financial services institutions are already taking practical steps. They are defining clear no-go zones where financing is incompatible with their transition pathway; applying transition pathways to real decisions – credit, insurance pricing, capital allocation – rather than keeping them at the level of strategy; aligning executive scorecards to long-term climate and value outcomes; and embedding climate and transition capability within investment committees and credit teams. At the same time, organisations are progressing at different speeds, shaped by their capacity, internal readiness and the system constraints they must navigate. The real differentiator is capability: institutions that invest early in climate literacy and decision-making frameworks tend to move further, faster, not because the risks are smaller, but because they understand them more clearly. 

Paduch closed the panel with a challenge: “How long-term are we really thinking? Why not adopt a 50-to-100-year perspective?” While such horizons may feel unconventional in a sector accustomed to quarterly reporting, the provocation challenges us to consider timeframes that align more closely with the realities of climate risk, infrastructure lifecycles and intergenerational prosperity. 

Financial institutions cannot deliver the energy transition alone, but they can shape the system that either accelerates or constrains it. The opportunity is to design a financial system that rewards foresight, scales what works and enables capital to flow at the pace the transition demands. 

Acting decisively does not mean abandoning fiduciary duties. It means interpreting them through a longer lens: recognising that climate risk is investment risk, and that long-term value depends on choices made today. 

Get in touch to discuss how your organisation can turn its sustainability ambitions into action. 

Connect with Carlos Blanco, Simon Guttmann, and Tony Fiddes on LinkedIn. 

This is the third article in our three-part series of insights from senior financial services leaders on what bold sustainability leadership looks like today. Read the first article here and the second here.  

Thank you to Frank Paduch, Janet Torney, and all participants in our September 2025 roundtable for their thoughtful contributions and the courage they continue to show in shaping the sustainability agenda in financial services.