By Alexandra Christiansen , Portfolio Manager of Nordea’s Global Climate Transition Engagement Strategy

As we enter the next phase of global decarbonisation, institutional investors are rethinking their strategies. Instead of avoiding high-emitting sectors like cement, steel, utilities, and waste management, many are now investing in their transformation—advancing climate goals while capturing long-term value.

These sectors are major contributors to global emissions but remain essential to modern economies. Divesting from them may seem like a straightforward approach to portfolio decarbonisation, but this is not reflective of economic reality and risks sidelining the progress needed to reduce emissions in the real economy. Increasingly, investors are taking a different approach: backing “improvers”—companies with credible plans and capacity to deliver value-creative decarbonisation.

This strategy is already delivering results. For example, the Nordea’s Global Climate Transition Engagement Strategy, which targets improvers, last year achieved real economy emissions savings of 24 tonnes of CO2 per million euros invested—over 12 times the reduction rate of the MSCI ACWI Index1, and during the past 3 years has achieved a 16% reduction in carbon intensity, significantly outpacing the MSCI ACWI’s modest 1.6% decrease during the same period2. Moreover, attractive investment returns were not compromised to achieve this result.

Why invest in high-emitting sectors?

Heavy industry and utilities are among the largest contributors to global emissions. Cement alone is responsible for approximately 7% of global CO2 emissions.3 Steel, which is essential for everything from infrastructure to renewable energy, is another high-emitting sector. Utilities, meanwhile, play a key role in accelerating the energy transition by replacing fossil fuel generation with renewable energy and modernizing power grids.

Divesting from these sectors would remove the opportunity to influence transition strategies and forego attractive investment returns from value-creative decarbonisation pathways. Instead, active ownership allows investors to engage with companies at a time when policy and market dynamics are creating new incentives for decarbonization. For instance, the vast majority of cement emissions come from clinker production, with over half stemming from chemical processes that energy substitution alone can’t address—highlighting the need for systemic change.4 We believe we have an edge in understanding the technological, policy and consumer behaviour shifts in this industry better than the wider market, and can take advantage of this to generate alpha and partake in meaningful decarbonisation delta.

Decarbonization can enhance valuation

A company’s approach to decarbonization can significantly affect its valuation. Our valuation work underlines significant value destruction to businesses in industries like cement if no action is taken to avoid increasing carbon costs, but shows meaningful upside to future cash flows with credible decarbonisation strategies. The waste management sector is another example of where investing in landfill-to-renewable gas projects will reduce emissions and generate additional upside to earnings. US utilities are also transitioning from fossil fuels to renewables, supporting long-term earnings growth.5

Active ownership can drive real impact

Engagement-based strategies are beginning to deliver measurable impact, measured in terms of both real economy emissions reductions and alpha generation as the market rewards these credible decarbonisation pathways. Avoiding high-emitting sectors is no longer seen as a viable long-term strategy. Instead, we see investors taking a more thoughtful, long-term approach, recognising that integrating sustainability is about positioning for durable growth and stronger competitive positions. What we are seeing is a maturing of the conversation. Clients are moving beyond screens and exclusions, and increasingly seeking real-world impact.