Climate megatrend 2025

Is it the end of the climate megatrend investing?

Reconciling long term climate goals with short term navigation

WMO confirms 2024 as warmest year on record at about 1.55°C above pre-industrial level, yet the long-term climate goals are being wined down. In 2024, heavy rainfalls caused numerous and repetitive flooding in Europe and other losses from natural catastrophes have generated over $140bn cost globally¹. Estimation in a 3°C warming scenario could imply expenses of over €175 billion per year². Additionally, adverse effects on physical assets will have social consequences not yet accounted for.

How does that impact the investors?

Since 2015, and the ratification of Paris, decarbonizing or fighting climate change has been classified as a megatrend—global drivers of change that are expected to significantly influence vast segments of humanity, encompassing political, economic, social, environmental, or technological transformations. But as Hansen³ rationalizes, a megatrend is neither a prediction nor a forecast; rather, it represents an informed estimate based on the current evidence.

The investment rationale is based on our expectation that companies will prioritize decarbonization efforts—whether by improving their own operations or creating low-carbon solutions for the broader economy to achieve net-zero goals—to gain market share and build a competitive advantage.

Anticipating the future impacts of climate change is inherently complex because it involves a wide range of physical and societal factors. Adding turbulence and uncertainties makes the task as tough as dealing with extreme weather events. And we currently experiencing political stagnation, following the withdraw of the US from the Paris agreement great uncertainty surrounding the future of the IRA in the US; the implications of the European omnibus on the Green Deal; and the hindering effect of tariffs on carbon markets adoption and expansion in the Asia-Pacific region.

Headwinds, yes, but structural opportunities remain

As described, the political narrative surrounding sustainability has significantly shifted to hostility since the new US administration, yet the fundamental economic challenges persist. To capitalize on opportunities arising from the climate megatrend, an investor must identify patterns of change that are applicable across various contexts. By targeting these trends, such as energy transition or climate resilience, we help investors align their portfolios with long-term growth opportunities by supporting companies driving innovation and structural change, regardless of short-term challenges. Our focus is on incorporating high-quality, innovative, and technology-driven companies to address the real-world severity of financially material physical and transition risks of climate change and sustain their competitive edge and achieve long-term success. We maintain a positive and optimistic outlook by identifying emerging solutions that transcend traditional business cycles, steering clear of short-term pessimism.

In our next article, we will explore how the identification of emerging trends that transcend traditional business cycles can be applied across other megatrends than climate. More broadly, these themes can present appealing opportunities, but success hinges on identifying the sweet spot in a theme’s growth trajectory and knowing when to exit as it becomes overcrowded.

1. Munich Re. Natural disasters 2024: Climate change is showing its claws
2. European Commission, PESETA IV, 2020
3. Hansen, K. H. (1983). Megatrends in American society: Policy issues for state education agencies. Nothwest Regional Education Lab