The time horizon dilemma

The following is an extract from our whitepaper: Signal failure: An energy transition is happening – but are investors aware?

Market participants who only consider the short term could risk being surprised by or missing out on an energy transition.

Equity investors appear to be holding onto their positions for very short periods on average, with the average holding period in the largest 1,000 companies in the US falling from around nine years in 1975 to around half a year in 2025. International markets are similarly short-term focused, with average equity holding periods of around one year (CIBC, 2025). At the same time, median CEO tenure in the S&P500 fell from six years in 2013 to less than five years in 2022 (Chen, 2023), and there is evidence to suggest that the increasing share of stock options in executive compensation may be associated with higher risk taking by CEOs (Van Le & Lopez Cruz, 2024).

Focus on quarter-by-quarter results and shareholder distribution is likely to divert companies’ attention from long-term structural changes and their capital implications. For instance, the International Energy Agency (IEA) expects a 35-40% supply gap for copper by 2035, driven by economic development and the energy transition (IEA, 2025) – but shareholder distributions paid out by the top 10 publicly listed copper mining companies were over 2.5x larger than their capital expenditure on growth projects, and distributions have been growing at 3x the rate of growth CAPEX, over the last 10 years.[1]

Climate risks are material long-term risks. 

There are broadly two categories of climate risk: transition risk and physical risk. Transition risk describes the risks associated with an energy transition, including from climate policies, technology developments, and public perception. Physical risk is the risk from physical climate change, which spans acute risk events like heatwaves and tropical cyclones to chronic risks, such as productivity impacts from permanently higher temperatures. Every additional tonne of GHG emissions increases global warming, and every additional degree of warming increases physical risk non-linearly.

If the world took stronger policy action to reduce emissions, this would result in higher transition risk over the short and medium term but reduce physical risk in the long term – but they would likely still be higher than today. Given their long-term nature and dependency on developments in technology, geopolitics, and our understanding of climate systems, which themselves are complex and may behave chaotically, there is clearly a high degree of uncertainty around how and when these risks will materialise.

Scenario analysis allows us to explore how these risks could play out – and how they may be mitigated. 

Our scenarios are not forecasts, but illustrative pathways built on a set of assumptions and constraints we believe to be plausible today. We use them to evaluate how global energy and land systems could evolve over the next three decades, resulting in different climate outcomes and economic conditions. Scenarios are available from many sources, including international agencies, energy companies, and consultancies.

We think there is value in developing our own scenarios to better understand the key trade-offs involved in a transition to a low-carbon economy and yield investment relevant insights on future risks. The greater the potential disruption from an energy transition, the more likely we are to see relative winners and losers within key sectors.

Read the full whitepaper to discover more

 

Key risks

The value of an investment and any income taken from it is not guaranteed and can go down as well as up, and the investor may get back less than the original amount invested.

 
[1] L&G analysis based on Bloomberg data and company disclosures.