2025 is predicted to be a turbulent yet opportunity-driven year for global sustainable equities, as despite market volatility and political headwinds, businesses with strong ESG credentials are likely to emerge as “key winners”.
With more investors predicting a shift to green energy, healthcare and industrials, as the political and regulatory landscape continues to evolve, portfolio managers have forecasted a robust year for global sustainable equities when PA Future asked about their outlooks for 2025.
Energy transition as a megatrend
The energy transition will continue to be a ‘megatrend’ with massive shifts in capital allocation, policy, regulation, technology and consumer behaviour, according to Alexandra Christiansen, portfolio manager of Nordea’s Global Climate Engagement strategy (pictured left).
She said: “This will create changes in the fundamentals and justified worth of a wide span of businesses. We plan to take advantage of these market inefficiencies because there remains a vast opportunity of misunderstood and misvalued businesses.
“For example, in the cement sector we see a clear commercial opportunity to decarbonise the manufacturing process. In Europe, this will avoid a meaningful carbon cost that will hit the industry in the next decade as free carbon allowances are withdrawn. We also believe zero carbon cement can command a green premium. In the strategy today we invest in Heidelberg, Buzzi and CRH.”
Opportunities in healthcare, industrials and green energy will boom
Meanwhile, Jean-Philippe Hechel, portfolio manager of the Sustainable Equity – Global Dividend fund at J. Safra Sarasin (JSS), said “compelling opportunities will exist in the industrials and healthcare sector” because these sectors have been trading at an “attractive valuation valuations relative to the broader market and exhibit strong cash flow generation, solid balance sheets, and profitable growth trajectories”.
Companies operating in these sectors are able to perform across economic cycles, Hechel suggested. “The companies we invest in these areas are also well-positioned to withstand a higher interest rate environment while maintaining and growing healthy dividends.
“High-quality businesses with strong fundamentals and a commitment to sustainability will likely emerge as key winners and provide resilience, regardless of market volatility or political shifts.”
Further, Pascal Dudle, head of impact and thematic investing at Vontobel Asset Management (pictured right), said companies benefitting from structural growth may present significant opportunities for investors. He commented: “As interest rates continue to come down in both the developed and developing world, 2025 is likely to mark a market shift to fundamentals.
“The energy transition is here to stay as clean technologies are in many cases economically viable, scalable and come with limited technology risk. The need for reliability and resilience should in particular drive infrastructure investments, such as higher grid capex to ensure hardening and modernisation.”
This was echoed by Nordea’s Christiansen, who suggested green building materials and green energy demand – of which the Nordea Global Climate Engagement fund has “meaningful exposure” to both – performed strongly in 2024 and will continue to do so this year.
She said: “Companies with credible decarbonisation pathways, such as manufacturing its buildings with green materials, have outperformed. Also, green energy demand driven by data centres is another area of opportunity, where utilities with zero-carbon generation capacity have been winners.”
The Trump effect: With challenge comes opportunity
However, it would be remiss not to highlight concerns around the recent re-election of Donald Trump as US president and potential impact on sustainability-focused companies. Trump has advocated policies to promote the interests of oil, gas and coal companies and reverse President Joe Biden’s decisions to mitigate climate change impacts.
There remain many speculations on what decisions President Trump will make, such as potentially withdrawing from the Paris Agreement, loosening restrictions on coal, gas and oil extraction, and even on emissions. James Thomson, fund manager of the Rathbone Global Opportunities fund, said Trump’s re-election has promoted “a new era of investing” in what he described as a “pro-growth ‘America First’ agenda potentially littered with inconsistencies and unintended consequences down the road.”
However, despite these challenges, fund managers are hopeful this will give rise to new opportunities in global sustainable equities.
David Harrison, fund manager of the Rathbone Greenbank Global Sustainability fund, said: “The energy transition from carbon-heavy fuels to cleaner and cheaper alternatives will continue to accelerate, despite new President Donald Trump’s rhetoric. Investment in electricity grids, coupled with emerging technologies in energy storage will be positive for businesses such as Schneider Electric and Hannon Armstrong.”
Further, while JSS’s Hechel said while “Trump’s election could pose challenges for sustainability-focused companies through focus on deregulation or shifts away from ESG priorities”, he remains confident that “high-quality businesses with strong ESG credentials will remain well-positioned for long-term success. This is because sustainability is a core pillar of corporate resilience and value creation”.
This confidence was echoed by Vontobel’s Dudle, who said: “Despite the return of Trump to the White House and the advancement of right-wing parties in Europe, we remain positive on the outlook for sustainable investing in 2025.
“Sustainability will continue to be important despite some bumps in the road caused by the recent political shifts, and will be driven by corporations who remain committed, for reasons ranging from economic opportunities to risk management.
“Emblematic of this was the unexpected, but encouraging support from the chief executive of ExxonMobil at the time of COP29 in November, who had urged incoming President Trump not to exit the Paris Agreement and keep the US Inflation Reduction Act (IRA) intact.”
Value stocks could see continued resurgence
JSS’s Hechel (pictured below) also predicted that 2025 will be a strong year for value stock recovery.
He said: “After a strong run for growth and technology stocks since early 2023, markets experienced notable sector and style rotations during the summer of 2024. This period of volatility saw value stocks, especially dividend-paying names, show signs of resilience and improving relative performance.
“If Trump were to fully implement his agenda on fiscal, trade and immigration, risks of a 2022 scenario could rise, when a supply-constrained economy was hit by a demand shock. This triggered a surge in inflation and a corresponding reaction by the Fed.
“The following rise in real rates was a key reason for expensive growth sectors to sell off, while value held up well. While this remains a tail-risk scenario, it is not implausible under aggressive policy implementation.”
Geopolitical risks will continue to stir markets
Lastly, Vontobel’s Pascal noted that due to the rising demand for more energy at a cheaper price, there could also be “surprising moves” in Europe, as well as China and other emerging markets, which could potentially counteract any withdrawal from sustainability initiatives in the US.
He said: “Other nations could step in, filling the gap that a possible US withdrawal from the Paris Agreement might leave. Volatility is likely to persist even in 2025, brought about in particular by ongoing geopolitical risk and the possibility of a new trade war between the US and China.
“With this in mind, it is worth noting these market turbulences are likely to create important opportunities.”
