By Alexandra Christiansen, portfolio manager of Nordea’s Global Climate Transition Engagement strategy 

The energy transition continues to represent one of the most significant economic realignments of our time. The shift toward lower-carbon systems is driving meaningful changes in capital allocation, regulation, consumer preferences, and technological innovation.

Those shifts are already having a profound impact on the fundamentals of a vast number of companies across global markets, creating a multitude of opportunities for active managers to capitalise on over the coming years.

That said, recent policy changes have created some uncertainty, particularly around the incentives for decarbonisation and what that might mean for the future cash flows of businesses exposed to the transition. Much of this debate is centred in the US, where the policy stance under the current administration has clearly shifted. While US decarbonisation spending may be moderate, we still see significant growth in clean-energy investment over the coming decade. This is ultimately down to the favourable economics of clean power.

It is also important to place the US in a global context. While the US matters enormously – and we continue to find compelling investment opportunities in the world’s largest economy – it is not the primary driver of global decarbonisation.

China, in particular, remains central to the equation. It accounts for roughly a quarter of global emissions and essentially all of the increase in emissions over the past decade. Yet it is also leading the global renewables drive. Last year alone, China installed about seven times more renewable electricity capacity than the US. Those numbers underscore why the energy transition remains a global megatrend – and one that no investor can afford to ignore.

Making a real-world impact

Despite this, many climate-focused investors continue to avoid or underweight the hard-to-abate sectors where this paradigm shift will be most pronounced. Although this can result in low overall portfolio emissions, it also has a limited real-world impact.

This means looking beyond the solutions providers to the parts of the economy where the incentives to decarbonise are most substantial, and where the path forward is still debated. These are often the heavy industries – such as utilities, materials, and industrials.

However, many businesses that will play a role in the future sustainable economy continue to be misunderstood and, as a result, misvalued. By investing in these overlooked opportunities and engaging with the management teams, we can unlock value potential by holding these businesses accountable to becoming more sustainable and more relevant in the future green economy.

A good example is Heidelberg Materials, which has been strongly rewarded by the market this year as it continues to demonstrate value-creative decarbonisation with the first production of zero-carbon cement, which is commanding a clear premium.

Decarbonising the rise of AI

Power generation is undergoing rapid transformation, driven not just by climate policy but by the surge in electricity demand from data centres powering the AI phenomenon. In our view, decarbonisation will be central to AI’s ongoing power needs, particularly given that many large tech companies have made stringent clean-power commitments.

Investors have been keeping a close eye on utilities able to grow meaningfully as grids expand and shift to cheaper, cleaner sources of generation. A good example of another company on the right side of change here is German utility RWE, which is exiting coal power generation and continuing to deliver a pipeline of compelling renewable projects.

Elsewhere, materials producers connected to electrification trends, such as copper miners, also remain central to the transition. Despite their heavy environmental footprint, excluding these companies ignores their essential role as enablers of electrification. Here, London-listed Antofagasta has been a strong beneficiary.

Looking ahead, regardless of shifting policy backdrops, energy efficiency remains a strong structural theme, as it always makes economic sense for businesses to become more efficient. At the same time, the transition in hard-to-abate sectors – particularly in Europe, where free carbon allowances are being withdrawn, and new mechanisms such as the carbon border adjustment are coming into force – is reaching a critical phase. This combination of tightening regulation, new technologies, and changing customer demand is likely to create volatility, but also, we believe, a rich opportunity set for investors.

Reference to companies or other investments mentioned should not be construed as a recommendation to the investor to buy or sell the same but is included for the purpose of illustration. The value of your investment can go up and down, and you could lose some or all of your invested money.

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