Did you know that by 2030—just seven years from now—we will need twice the natural resources Earth can regenerate in order to maintain our current lifestyle¹? Humans are consuming our planet’s resources so quickly it can’t keep up. And this is creating major risks and opportunities for investors.

On the one hand, overconsumption of raw materials critical to our health and quality of life represent a risk for many sectors and companies dependent on dwindling supplies. Costs are rising, supply chains are being disrupted, regulations are stymieing growth and investors are being impacted.

On the other hand, as people, governments and innovators strive to address this pressing situation, opportunities are being created in the area of resource efficiency. Excess stress on our planet’s vital life support systems can be addressed by channeling money and assets into optimizing usage of limited resources in a sustainable manner—and everybody stands to benefit.

Resource efficiency is a compelling investment opportunity to address the climate problem

As a pioneer of dedicated climate investing since 2008, when we launched Nordea’s Global Climate and Environment Strategy, we are happy to witness accelerating interest in providing capital to Climate and Environment solutions. A key element of our success over the past 15 years has been to identify cost effective climate and environment opportunities. Solutions that make economic sense are often widely adopted by end users and, hence, are attractive from an investment point of view.

While the global trend has strengthened over the years and the investable universe has expanded significantly, the key drivers have remained mainly the same. We have found excellent prospects in the multi-sector area of energy efficiency where the investment payoff is often short. We also like the area of intelligent power grids, because these must be expanded in line with, or preferably in advance of, renewables. Finally, eco mobility is a major industry undergoing a paradigm shift propelled by changing regulations, new technologies and consumer preferences.

The majority of our strategy targets optimizers aiming at resource efficiency. Here, we outline three areas of the climate and environment space that we believe are likely to prosper as investors increasingly access this megatrend.

Semiconductors are essential to the green transition

In many ways, semiconductors are the “brain” of energy efficiency — they are crucial enablers of both the digital and green economies. The future of “Smart Everything” depends on silicon chips running faster, scaling down to fit into smaller devices, integrating more capabilities, and reliably processing massive amounts of data – all while consuming less power.

Yet because our reliance on semiconductors also adds to growing energy consumption,  implementing solutions to improve their efficiency is crucial. To pave the way toward a cleaner future, chip developers must design products that work more efficiently. As such, chip designers play an important role in protecting our planet’s vital resources.

Eco mobility is a major trend that reduces carbon emissions

One area driving the increasing need for power semiconductors is the increasing appetite for electric vehicles (EVs). The incumbent internal combustion engine (ICE) cars and vans were responsible for more than 25% of global oil use and around 10% of global energy-related CO2 emissions in 2022², so the need to reduce emissions remains critical. Current forecasts suggests that the EV share of global new passenger vehicle sales jumps from 14% in 2022 to 30% already in 2026 – approaching 44% in 2030.³ An increasing number of semiconductors are required to produce EVs and the power semiconductor content per vehicle will consequently be increasing dramatically.

The investment thesis for eco mobility is straightforward: There is increasing demand from countries across the globe wanting to reduce their carbon footprints, and pushing clean-energy vehicles is an easy way to do it—in fact many offer first time buyers attractive tax incentives. The infrastructure around EVs is also interesting from an investment perspective. The EV industry has the potential to significantly reduce carbon emissions and improve air quality, while also delivering financial benefits to their users—and investors.

Smart grids are at the forefront of resource efficiency

Like renewable power generation, a resilient power distribution grid is another essential part of successful  sustainable energy uptake. However, the traditional power grid – designed for centralized energy production and distribution – faces challenges in accommodating the intermittent nature of renewable sources.

The current global investment in grids falls short of what is needed to reach net zero; annual investment in grids will need to more than double by 2030 to stay on track.⁴ Currently, we see action/funding plans laid out across the world to accelerate and support this journey –e.g. the Net Zero Industry Act and the Inflation Reduction Act⁵.

Companies that specialize in energy distribution are at the forefront of resource efficiency as they deliver the engineering solutions that will redefine the grid and power generation landscape. Companies that facilitate the connection of renewable power sources to the broader grid through transmission lines and substations are vital to the development of this space. With order intake accelerating, record backlogs and signs of project progress—along with a market that seems to underestimate growth and profitability—the investment scenario in 2024, in our view, looks attractive.

While a healthier and more prosperous future depends on the green transition, sustainability is no longer the sole driver of change – there is a clear economic rationale for investing in resource efficiency solutions that represent a solid investment choice in a diverse portfolio.

We strive to identify companies that help optimise the existing resource base and improve efficiency with their products and services because we believe this is the most economically sensible way to achieve lower emissions and reduce energy consumption.

We also believe the climate investment trend will continue for decades as there is no end in sight when it comes to new environmental innovations, industrial scaling of proven technologies, and global adoption.