By Alexandra Christiansen, Portfolio Manager of Nordea’s Global Climate Transition Engagement Strategy
Recent geopolitical events and policy uncertainty have thrown into question the continued relevance of decarbonisation across the economy. Many investors have begun to question whether investing in climate focused strategies still makes sense. For us at Nordea, the answer is clear. The transition to a sustainable economy continues to be a mega trend that no investor can afford to ignore. Decarbonisation and electrification are underlined by resource efficiency and energy security drivers that are independent of any near-term policy reform. There will be significant long-term shifts in capital allocation, regulation and consumer behaviour that will impact the fundamentals and justified valuations of businesses in the financial system. We believe this will lead to inefficiencies in the market that can be exploited to generate alpha.
Decarbonising Cement: A Misunderstood Opportunity
Our investments in cement holdings are clear cases of this. Cement is an incredibly carbon intensive material, making up around 8% of global emissions. Changing European regulation means that the industry faces significant carbon costs over the next decade, and this uncertain outlook has depressed the share prices of the cement producers in the market.
However we believe that the fundamental outlook of this industry is misunderstood. To begin with, cement is essential for our modern economy and one of the most consumed commodities globally - this is not a heavy-emitting industry in structural decline. As for carbon emissions, we believe that decarbonisation of cement producers’ operations can lead to superior investment returns.
Given the prospect of increasing carbon costs and stricter environmental expectations, these levers are reshaping the industry’s cost curve and competitive dynamics. Cement producers that lead in reducing emissions can benefit from “green premiums” and first-mover advantages. However, the market continues to undervalue many of these players, particularly in Europe, where concerns around decarbonisation pathways have led to years of de-rating. This presents an investment opportunity.
At NAM, we’ve identified compelling investment opportunities in companies making tangible decarbonisation progress. For example, this year Heidelberg Materials will begin production at their pioneering facility in Norway which will be the first plant globally to offer carbon captured net-zero cement at scale. We believe this will showcase the commercial viability of this opportunity.
Our constructive dialogue with the management team has been focused on value-creative decarbonisation, and we’ve seen share price outperformance over our investment horizon as investors begin to understand and reward these efforts.
Engagement at the Core
Engagement is a core part of the investment process. Over the past three years we have developed meaningful dialogues with the management teams of the companies we are invested in. There is a mutual understanding that we are aligned in wanting to create value through environmental improvement.
Our constructive dialogues with these management teams are reinforced by our deep understanding of the decarbonisation and nature-based challenges faced by the industries in our investment universe. We have a team of climate experts who generate proprietary research and decarbonisation pathways which are an integral part of our fundamental analysis and bottom-up valuation.
A Decade of Climate-Focused Investing
NAM has one of the longest track records in the market in investing in climate-focused strategies. Over more than a decade we have refined and evolved our investment process. This has enabled us to adapt to the opportunity set in the climate universe as the backdrop of policy and politics continues to evolve.
We have attracted world-class talent across climate academics, legal experts and thematic investors to build a diverse and highly-skilled Sustainable Thematic and Responsible Investment team. We have developed proprietary tools to gain an edge on assessing and valuing environmental footprints of the businesses in the universe. And we have delivered a long-term track record of alpha in our flagship environmental strategies. As we mark the 3-year anniversary of the newest strategy in our climate franchise, the Climate Engagement Strategy, we are proud to have delivered alpha and contributed to real-world decarbonisation for our clients.
Positioned to Deliver Long-Term Alpha
Climate expertise is at the heart of what we do. We understand the structural drivers of decarbonisation and the inefficiencies they create in markets. This underpins our long-term conviction and ability to generate alpha, even amid global uncertainty.
Through targeted investments, expert-led engagement, and rigorous analysis, we aim to turn sustainability challenges into opportunities for long-term value creation.
2 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
3 The performance represented is historical; past performance is not a reliable indicator of future results and investors may not recover the full amount invested. The value of your investment can go up or down, and you could lose some or all of your invested money.
4 There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up or down, and you could lose some or all of your invested money.
About Nordea Asset Management
Nordea Asset Management (NAM, AuM 286bn EUR*), is part of the Nordea Group, the largest financial services group in the Nordic region (AuM 422bn EUR*). NAM offers European and global investors exposure to a broad set of investment funds. We serve a wide range of clients and distributors which include banks, asset managers, independent financial advisors and insurance companies.
Nordea Asset Management has a presence in Bonn, Brussels, Copenhagen, Frankfurt, Helsinki, Lisbon, London, Luxembourg, Madrid, Milan, New York, Oslo, Paris, Santiago de Chile, Singapore, Stockholm, Vienna and Zurich. Nordea’s local presence goes hand in hand with the objective of being accessible and offering the best service to clients.
Nordea’s success is based on a sustainable and unique multi-boutique approach that combines the expertise of specialised internal boutiques with exclusive external competences allowing us to deliver alpha in a stable way for the benefit of our clients. NAM solutions cover all asset classes from fixed income and equity to multi asset solutions, and manage local and European as well as US, global and emerging market products.
Having entered the ESG space over 30 years ago, Responsible Investment is deeply rooted in our Nordic DNA. As an ESG pioneer and market leader we established an award-winning RI Team in 2009—now one of the largest in Europe. We currently offer a broad suite of RI solutions to investors of all types across the globe.
* Source: Nordea Investment Funds S.A.,31.12.2024
Nordea Asset Management is the functional name of the asset management business conducted by the legal entities Nordea Investment Funds S.A., Nordea Investment Management AB and Nordea Funds Ltd and their branches and subsidiaries. This material is intended to provide the reader with information on Nordea Asset Management specific capabilities, general market activity or industry trends and is not intended to be relied upon as a forecast or research. This material, or any views or opinions expressed herein, does not amount to an investment advice nor does it constitute a recommendation to buy, sell or invest in any financial product, investment structure or instrument, to enter into or unwind any transaction or to participate in any particular trading strategy. Unless otherwise stated, all views expressed are those Nordea Asset Management. Views and opinions reflect the current economic market conditions, and are subject to change. Any investment decision should be based on the Offering Memorandum or any similar contractual arrangement. All investments involve risks; losses may be made. While the information herein is considered to be correct, no representation or warranty can be given on the ultimate accuracy or completeness of such information. Prospective investors or counterparties should discuss with their professional tax, legal, accounting and other adviser(s) with regards to the potential effect of any investment that they may enter into, including the possible risks and benefits of such investment, and independently evaluate the tax implications, suitability and appropriateness of such potential investments. Published by the relevant Nordea Asset Management entity. Nordea Investment Management AB and Nordea Investment Funds S.A. are licensed and supervised by the Financial Supervisory Authority in Sweden and Luxembourg respectively. Nordea Funds Ltd is a management company incorporated in Finland and supervised by the Finnish Financial Supervisory Authority. This material may not be reproduced or circulated without prior permission. © Nordea Asset Management.
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