Investing with a conscience: energy

The war in Ukraine has shone a spotlight on the world’s energy markets. It has exposed the extent to which developed economies rely on politically or economically less stable nations to meet their energy needs, and the potential cost of that dependence. Energy markets had already been shaken up as governments, businesses and individuals confront the difficult transition from fossil fuels to renewable or cleaner energy sources. What are the implications of the energy transition for investors?

The global energy transition has been a critical element of governments’ deliberations, in one way or another, for most of the past decade. The Paris Agreement – officially named the UN Framework Convention on Climate Change – was formally signed by nearly 200 of the world’s leaders in April 2016.

The agreement set a target of ensuring that the rise in the average global temperature since the start of the industrial age must be kept below 2.0°C, and ideally less than 1.5°C – even though climate experts are now warning that the lower target is now virtually impossible, and the higher one increasingly difficult to achieve, although still technically possible.

Countries across the world have announced commitments to decarbonisation, including the electrification of public and private transport systems, green infrastructure projects and incentives for renewable energy generation. But since the Cop21 United Nations Climate Conference in Paris, the political backdrop to the climate transition has become increasingly complicated. Most notably, the United States withdrew its adherence to the Paris Agreement in 2017, rejoined in 2021 under former president Joe Biden, then pulled out for a second time in 2025 at the insistence of Biden’s predecessor and successor, Donald Trump.

With US commitment wavering, Europe has been in the vanguard on initiatives to curb global warming, and has handed a significant share of responsibility to the financial sector. To embrace and encourage sustainable and responsible investing by major institutional investors such as pension funds and insurance companies, the European Union has drawn up a transparency framework requiring financial market participants, and separately a wide range of other companies, to report on the environmental and social impact of their products, processes, distribution and supply chains – underpinned by the EU green taxonomy, a classification system setting out a list of environmentally sustainable economic activities.

Impact of war in Europe

A second factor that has overturned previous assumptions about energy use, sources and prices was Moscow’s invasion of Ukraine in February 2022, which prompted many European countries to rethink their dependence on Russian oil and gas, recognising that heavy reliance on the country’s fossil fuels represented a fundamental threat to their sovereignty.

They have been obliged to scramble to secure alternative sources of energy and, in the short term, some have fallen back on other types of fossil fuel – notably liquified natural gas shipped by tanker from the Middle East and the US, while Germany even stepped up consumption of coal to avert energy shortages, despite having previously targeted phasing it out as the most immediate priority of the country’s decarbonisation strategy.

Sources such as wind and solar energy are now increasingly competitive on cost or even cheaper than many types of fossil fuel.

However, in the longer term, weaning Europe off Russian oil and gas has given new impetus to the push to adopt renewable energy generation. Sources such as wind and solar energy are now increasingly competitive on cost or even cheaper than many types of fossil fuel, but the sector still faces challenges including intermittency, connection infrastructure and storage, because wind and sunshine cannot be turned on and off in response to levels of demand, unlike fossil fuel power plants.

Governments across Europe have set ambitious targets to increase the share of renewables in the energy mix. The REPowerEU strategy, agreed by member states in May 2022, seeks to “rapidly reduce dependence on Russian fossil fuels and fast forward the green transition”. Since then, however, renewable energy, especially wind power, has run into opposition from advocates of preserving the natural environment and the countryside, even in Europe. While solar energy has largely proved much less controversial, in several countries its adoption has been hindered by long delays in obtaining connections to national electricity grids.

Efficiency and renewables

The REPowerEU programme also introduced a range of long-term energy efficiency measures, including more demanding targets under the Fit for 55 package of European Green Deal legislation and fiscal measures to encourage energy saving, alongside incentives to boost the adoption of renewable energy encompassing power generation, industry, buildings and transport. For example, the EU Solar Strategy aimed to double photovoltaic deployment between 2022 and 2025 and install 600GW of solar generation capacity by 2030, subsequently increased to 750GW. In 2025 EU countries added 65.1GW of solar power capacity, taking the union’s total to 406GW.

There are now a wide range of well-established investment opportunities within the renewables sector, including the development of transmission and storage as well as generation infrastructure, although investor returns are still dependent on government subsidies as well as electricity prices and the value of the underlying assets.

There are now a wide range of well-established investment opportunities within the renewables sector, including the development of transmission and storage as well as generation infrastructure.

Renewable energy generation projects aim to offer a reliable inflation-adjusted income stream along with some capital appreciation over time, similar to returns on commercial property or other infrastructure assets. There is also investment in the equity of companies producing renewable energy equipment, including solar panels and wind turbines – although the sector has struggled since the early 2020s amid regulatory uncertainty and rising construction costs.

Battery storage is another area of promise as countries seek to address the intermittency of renewable electricity sources. However, the sector was shaken by the bankruptcy in March 2025 of Northvolt, a well-financed start-up that sought to become a European leader in batteries for electric vehicles, and which at one time had plans for six production plants in Europe and North America, before becoming the biggest insolvency in Sweden’s industrial history.

More speculative, long-term investment opportunities exist in earlier-stage technologies such as hydrogen power, for which the EU drew up a strategy in 2020 to expand its use as part of the European Green Deal. Renewable hydrogen fuel, whose only by-product is water, has struggled to gain traction for the car industry, but hydrogen is still considered a promising technology for the greening of carbon-intensive industries such as steelmaking as well as certain types of transport, especially shipping.

Opportunities in infrastructure

Energy infrastructure will also need to be adapted to new energy sources through the creation of new links and networks. Connecting new renewable projects to the electricity grid also creates investment opportunities, for example in companies that manage large-scale electrical transmission systems.

New markets are also opening up for companies developing new generations of electrical cables and power equipment. By 2050, the world is estimated to need to more than double the current length of power lines worldwide, along with an increase in transformer capacity.

The electrification of transport systems will also generate new products and processes, despite the US administration’s blocking of many of the provisions of Biden’s 2022 Inflation Reduction Act, dampening enthusiasm for the roll-out of zero-emission vehicles and charging infrastructure. Meanwhile, the fall in fossil fuel prices since early 2022 has removed an incentive to move away from combustion-powered vehicles; on the other hand, advances in battery technology mean motorists are no longer as concerned about the restricted range of electric cars.

Collective investment vehicles

The role of fossil fuels remains contested. The Ukraine war has highlighted Europe’s continuing dependence on fossil fuel; gas continues to provide over 20% of Europe’s energy needs, only slightly less than in 2022, despite widespread efforts to lower consumption. Meanwhile, oil and gas companies that had proclaimed their embrace of the energy transition, including BP and Shell, have scaled back some of their ambitions and restated their commitment to new fossil fuel exploration and production.

Nevertheless, a broad spectrum of fund investment options exists for individuals and institutions seeking opportunities arising from the energy transition: from ETFs specialising in clean energy equity investment to active funds targeting likely beneficiaries from the energy transition. Asset managers may take a direct approach, identifying companies whose technology, products or services have an impact on reduction of carbon emissions, as well as promoting decarbonisation by engaging with businesses to help them lower their carbon footprint and embrace sustainable production and business models.

In the long term the energy transition is a structural growth opportunity that can be incorporated into any long-term investment strategy.

The energy transition may be happening more slowly than was envisaged in Paris in December 2015, but a decade later environmentally-minded investors have a much wider range of options to incorporate their moral and political – as well as scientific – principles into their portfolios. It may have been a bumpy ride so far, but in the long term the energy transition is a structural growth opportunity that can be incorporated into any long-term investment strategy.