United StatesAn edited version of this article was first published in Investment & Pensions Europe.
Cardigans, I’m reliably told, are back in fashion. So too, disappointingly, are ties. Definitely out this season, however, are rational views on climate change.
The transition to a low-emission, climate-resilient economy has never been and never will be linear. It is currently being buffeted by US-led politics in particular with signs of contagion elsewhere. Although this factor is dominating the current narrative, the trajectory of the transition will be shaped primarily by longer-term fundamentals, particularly economics.
Asset owners are especially vulnerable and stand to lose significant wealth if their response is sub-optimal. While many are correctly focusing on the new investment risks posed by the effects of climate change, there appears to be considerable investment upside in economic sectors that are expanding rapidly as society seeks to avoid exacerbating the climate change that’s already taken place.
Rational investors should therefore consider how to position themselves for when market prices reflect the attractive fundamentals; those who delay are likely to miss out on a period of profound economic transformation and wealth generation.
Consensus on climate action has frayed
The optimism of 2021 has sadly dimmed. Ambitious climate goals are being scaled back and, for the second time under President Trump, the US has undermined global cooperation by withdrawing from the Paris Agreement.
The resurgence of climate denialism, promoted in particular by the fossil fuel lobby, is troubling, lending financial support to political populists bent on blaming “net zero” plans for flat living standards and sclerotic economic growth. Opposition to new renewable energy projects is growing in many places, sometimes amplified by legitimate geopolitical concerns over technological dependency on China.
This climate backlash is not just rhetorical, though. The effect is being felt through the roll-back both of national climate commitments – for example, Argentina has withdrawn federal support for climate action and the EU looks set to soften its proposed 2040 emissions targets – and of private sector targets, such as certain banks delaying deadlines for achieving their net-zero targets. In the latter case, many corporates and investors face pressure from the US government and others to soften or abandon their commitments or risk losing access to valuable markets. The consequences of these trends will most likely be the misallocation of capital, with enormous economic inefficiency being the inevitable result.1
Progress in the real economy continues
Nevertheless, the direction of travel in the real economy provides cause for encouragement. There are signs of strong growth in key sectors, underpinned by hard economics. Three examples stand out:
First, many proven low and zero-emission technologies are already ‘winning’ in key markets. Electric vehicles (EVs), which are forecast to hit 26% of global car sales this year, are gaining market share because they are reliable, functional and cheap to run.2 Mass adoption of affordable EVs extends beyond rich countries: sales rose by an estimated 60% across developing African, Asian and Latin American economies in 2024.3 Meanwhile, solar and wind now dominate new power generation in China, the EU and elsewhere because of lower costs, even without subsidies.4
Second, and related, consumers increasingly benefit from technologies that reduce bills, as well as emissions. Although far from a cutting-edge technology, LED lightbulbs use at least 75% less electricity – and last up to 25 times longer – than incandescent bulbs.5 According to the UK government, replacing domestic gas boilers with air-source heat pumps can lower energy bills by around £100 per year and reduce household heating-related emissions by up to 70%.6
Third, rising demand for electricity – associated with the proliferation of energy-intensive data centres and the electrification of transportation and heating – is galvanising faster deployment of grid infrastructure and equipment.7 An estimated €584bn of investment in European grids is needed by 2030 to meet a projected 60% increase in the bloc’s electricity consumption.8 Upgrades and expansions to grid infrastructure will support opportunities for grid developers and operators, as well as suppliers of critical hardware and software.
In contrast, falling oil and coal prices – at a time of rising global energy demand – are indicative of a fossil fuel industry struggling to maintain market share.9 Investors must ask themselves whether the stranded-asset risks facing hydrocarbon reserves are truly reflected in company valuations.
A new, welcome era of pragmatism
The language of the transition is migrating away from environmentalism. Ambiguous and politically contentious terms like “green”, “ESG” and even “net zero” are giving way to a more pragmatic focus on jobs, resilience and cost savings. The UK government’s recent decision not to proceed with a “green taxonomy” is a case in point.10
The rising financial liabilities from more extreme climate-related weather events are also now front and centre for public and private decision-makers. Reinsurers continue to upgrade their models and tighten underwriting terms, pushing up insurance premiums, with the inevitable result that companies have stronger incentives to better manage climate-related risks.
Governments meanwhile are recognising the importance of climate adaptation and are taking measures to improve the resilience of infrastructure, particularly transportation, energy and water supply. The World Resources Institute estimates that every £1 invested in adaptation can yield over £10 in avoided losses and economic, social and environment benefits over 10 years.11
Against this backdrop, asset owners should position themselves to navigate the transition through four overarching actions.
First, by sharpening their evaluation of climate-related opportunities and risks at both the asset- and portfolio-levels. Second, by pursuing the long-term investment opportunities associated with the climate response, particularly at a time of depressed asset prices. Third, by mitigating risk through portfolio rebalancing and effective stewardship activities to pivot towards more resilient companies and issuers. And finally, by proactively advocating – either directly or through industry groups – for clear policy frameworks that can underpin substantial market growth.
I believe that rational investors who redouble their focus on climate-related risks and opportunities will be rewarded for their thoughtful analysis and proactive investment when the facts reassert themselves over misinformation and this period of inertia inevitably comes to a close.
It is not unrealistic to foresee today’s discouraging narrative pivot in the near-term to one that is focused on the financial downside arising from environmental challenges, as well as the potential for wealth-creation from solving them. I fully expect that a consensus will re-emerge on this topic: as Bill Clinton’s advisor James Carville once famously quipped, “it’s the economy, stupid”.
1 Kotz, M., Levermann, A. & Wenz, L., 2024: The economic commitment of climate change. Nature / Deloitte, 2022: Global Turning Point Report
2 Bloomberg NEF, 2025: Electric Vehicle Outlook 2025. Figure includes battery electric and plug-in hybrid vehicles
3 IEA estimates, cited by The Economist, 21 August 2025: The green transition has a surprising new home
4 Ember, 2025 / Reuters, 22 July 2025: Around 90% of renewables cheaper than fossil fuels worldwide, IRENA says
5 US Department of Energy, 2025: LED Lighting
6 UK Government, 2025: Energy Efficient Home Campaign
7 Bloomberg NEF, April 2025: Power Generation from Renewables Set to Jump 84% in Next Five Years as Demand from New Data Centers Surges
8 European Commission, 2023: European Grid Action Plan
9 LSEG data, as at 3 September 2025
10 HM Treasury, July 2025: UK Green Taxonomy Consultation Response
11 World Resources Institute, June 2025: The Compelling Investment Case for Climate Adaptation
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