By Eric Pedersen, Head of Responsible Investments at Nordea Asset Management

The case for sustainability-conscious investing (a.k.a. “ESG”), particularly in the energy transition, is less cyclical than it may seem. While policy reversals in the US and regulatory dithering in Europe have grabbed the headlines, technologies like wind, solar and BESS (grid-scale battery solutions) are quietly becoming the cheapest and fastest way to ramp up power supply for everything from households and transport to data centers and a rapidly growing number of industrial processes. Even – perhaps paradoxically – oil fields (see: Texas¹). At the same time, our experience shows that investors’ implicit minimum hygiene level when it comes to issues relating to human rights, as well as their interest in nature solutions, circularity and the like are stronger than what is necessarily reflected either in broad product category flows or in product labels. Finally, especially for institutional investors, a robust investment stewardship program has become a sine qua non and thus a determining factor in manager selection. True, we are no longer in the heyday of 2020 and 2021, where almost any investment strategy labelled “ESG” would attract large flows money. The current groundswell of demand for sustainable solutions is quieter, but also more demanding of asset managers, who must be able to demonstrate that what they propose is well-founded and considered in terms of what investors can expect. This maturation of ESG should therefore not be misunderstood as a retreat from sustainability ambitions, but rather to signify that focus has moved beyond labels and inputs to what ultimately matters to long-term investors – namely actual outputs in terms of real-world impact, reputational integrity and financial risk and return.

Achieving real-world outcomes

This evolution of ESG and recent historical returns (The S&P Global Clean Energy Transition Index rallied 44% in 2025, handily beating a 16% advance in the S&P 500 Index. It’s also outpacing an 11% gain in the S&P Global Oil Index) have increased the appetite for climate-focused strategies targeting real-world outcomes. While recent policy changes – particularly in the US – have created near-term uncertainty, decarbonisation remains a global megatrend set to persist over the coming decades, in part due to increasingly favourable economics. However, not all technological pathways are of equal merit, and markets continue to misprice the value of credible corporate transition strategies. Utilities are firmly in the spotlight today as power generation undergoes a profound worldwide transformation. This is driven by the sharp rise in electricity demand from the general electrification of our economies and – at the margin – by the growth in data centres powering AI, cloud solutions etc. Meeting these expanding energy requirements without catastrophic increases in GHG emissions will both depend on and be driven by further decarbonisation, in part as many of the world’s largest technology companies remain committed to ambitious clean-power targets. Among the utilities, the German firm RWE is emerging as a key beneficiary of the energy transition and the drive for European energy independence, pairing a decisive coal phase-out with the execution of a significant renewables build-out. Through sustained engagement, we have supported the company’s efforts to expand clean capacity and enhance the credibility of its science-based targets.

The importance of “Systems Stewardship”

Engagement with companies in high-emitting sectors, such as utilities, is essential to address emissions reduction, including threat of methane emissions, which are estimated to account for 30% of today’s global warming² . While individual engagement can play a meaningful role in influencing company behaviour, systemic challenges like methane are particularly effective when addressed through coordinated investor action along the entirety of the relevant value chains. This is why investor coalitions and collective engagement activities remain powerful tools for driving real-world change. Since 2022, we have spearheaded a collaborative engagement programme with numerous like-minded investors to facilitate material cuts in methane emissions across the energy, utilities, and waste management industries. In addition to engagement with individual corporates, this has required dialogue with policymakers to reiterate that the framework within which companies take their investment decisions should remain as supportive and predictable as possible. For example, a group of 44 leading investors representing more than €4.5trn in AUM recently called on the European Commission, European Parliament and EU Member States to uphold and swiftly implement the EU’s long-announced methane emissions regulation³ , and Nordea, collaborating with industry initiatives such as the IIGCC⁴ , has met directly with EU officials in support of this initiative.

Smoothing the path for tomorrow’s winners

Short-term regulatory volatility such as that faced by sustainability-conscious companies and investors in the current environment is unhelpful, in that it creates noise and allows the proliferation of negative narratives, positing sustainability and competitiveness as being at odds with one another. As long-term investors, we know that there is no durable competitiveness without sustainability. That is what we – in tune with an overwhelming share of the asset owners we meet – do our best to impress upon both our investee companies, their clients and suppliers and the relevant policymakers. Tomorrow’s winners will be the companies and investors who think ahead, maintain their overall strategic direction, and don’t let themselves be distracted by ever-changing “vibes”.

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.