Outlook 2025
40
is the decision of Alphabet to power a new Minnesota data center with 1.6 GW of renewables, backed by what is described as the world's largest battery system by energy capacity. More general examples of how the economics today favour renewables include that the state of Texas – by no means a paragon of sustainability for sustainability’s sake – in 2025 sur- passed also-growing California as the US leader in grid-scale solar generation, while the United States as a whole added a re- cord 50 GW in wind, solar and battery capacity. Politics can still get in the way, as witnessed by the travails of several large off- shore wind projects, but the longer-term economic logic seems clear. And meanwhile, China continues to add renewables faster than the rest of the rest of the World combined, driven in large part by a desire to reduce its reliance on imported fossil fuels. As for Europe, events are moving fast at the time of writing. But also here, there is a dichotomy between headlines reflecting the political posturing by parts of the European Parliament and some Member States jostling for short-terms relief on one hand, and the steady long-term commitment of the Commission and the majority of the Council, backed by most long-term inves- tors on the other. While the simplification drive prompted by the 2024 Draghi report and reflected in the so-called Omnibus pack- ages continues, there is a growing recognition that simplification and deregulation are not synonymous – especially if that de- regulation would take a form that rewards laggards and by ex- tension punishes the very companies that have diligently begun their transition and taken the lead in the economic transition of Europe. This added nuance to the debate is in part the result of policy engagement by both companies and long-term investors, including Nordea Asset Management, in co-operation with the Institutional Investors Group on Climate Change 37 and others. One area where the long-term focus of the Commission and investors such as Nordea Asset Management are manifesting itself is in the discussion about European Union’s Emissions Trading System (ETS), which is the core the Union’s climate policy and is up for review in mid-2026. While not the only mo- tivation, the ETS is an essential driver for high-emitting compa- nies’ decarbonisation plans as it creates a very visible financial motivation for the needed investments. Another example is the EU Deforestation Regulation, which – even if delayed and with minor amendments – is now scheduled to come into force from the end of 2026. In the same way, the changes to the plan for phasing out sales of new Internal Combustion Engine cars by 2035 were minor, and the new Sustainable Finance Dis- closure Regulation may well again kickstart the sale of ESG- themed investment products to retail investors (noting that among long-term, institutional investors, the demand for Re- sponsible Investing expertise has remained strong throughout). Although the expansion of the ETS to road transport and buildings has been delayed for one year, and a number of EU member countries have asked for relief in the face of gas price spikes following US and Israeli military action against Iran, the most material change from the review is likely to be a sharper
targeting of the allocation of the substantial ETS revenues, and a tightening of the Carbon Border Adjustment Mechanism (CBAM), which is important to ensure European companies’ competitiveness vis-à-vis imported products. Importantly, the substantial revenues from the ETS have so far often been used by member states for purposes that were at best peripheral to the energy transition. Going forward, these expenditures will likely be more targeted and can be an important supplement to other subsidies to transitioning companies and new tech- nologies agreed in the latest EU Budget, as can a mechanism awarding additional free ETS to companies that demonstrate progress in their transition program. The ETS and the CBAM and the decarbonisation they promote are at the center of the EU’s climate ambitions, which were confirmed in November 2025 as a 90% emissions reduction target by 2040. The Paris Agreement’s Nationally Determined Contributions by other major economies such as Japan, Cana- da and Brazil under the Climate COP process play similar roles, as do those of China and economies across Asia and South America. But with the rapidly dropping prices of renewable energy –supplemented by nuclear power – climate ambitions are no longer the only driver for decarbonisation. Indeed, facili- tated by the ready availability of renewables, energy security and general resilience have been able to take center stage as drivers of decarbonisation against the backdrop of the latest geopolitical developments. This is not less so with the expect- ed growth in energy demand from data centers as well as the general electrification of the World economy. At the time of the 1973 oil crisis, there was no alternative to fossil fuels. Following the invasion of Ukraine by Russia, it has taken time to wean Europe off pipeline-delivered gas. LNG was for a while seen as a viable alternative, also for developing and middle-income countries with limited domestic supply of tradi- tional energy. With the US-Israel-Iran war, that assumption too is proving doubtful. It seems ironic that exactly at the moment when broadly defined Sustainability goals are being so loudly questioned by vested interests, the imperatives of energy secu- rity and industrial resilience are taking over the job of pushing the world towards decarbonisation. We would add to this that the logic of diversity and inclusion, and the human rights is- sues raised by an increased global incidence of armed conflict cannot just be wished away, but must be addressed with struc- tured and well-argumented frameworks.
Companies and investors with a long-term outlook will take note.
Eric Pedersen Head of Responsible Investments
37) https://www.iigcc.org/.
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