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 emissions¹. 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 Materials² 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 clients³.

Positioned to Deliver Long-Term Alpha⁴

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.