Energy Transition: Paris unfolds its potential even after ten years

Key takeaways on the potential of investments in the energy transition:

1. Following the Paris Climate Agreement, investment flows have significantly shifted in favor of the energy transition.
2. The energy transition can act as a driver for above-average growth in the following areas: renewable energy, grid expansion, energy efficiency, and electrification.
3. For investors, it is crucial not to overlook quality. Therefore, the focus should be on the return on capital of the invested companies.

Only a few days remain until the year ends. But looking at the thermometer, it is already clear: 2025 could go down in history as one of the warmest years, alongside 2023 and 2024, since records began. Just last month, global temperatures climbed to an average of 1.54°C above pre-industrial levels, according to the EU’s Copernicus Climate Change Service, making it the third warmest November on record.

This ominous record is particularly significant in the context of the Paris Agreement, which marked its tenth anniversary on December 12. A decade ago, no fewer than 195 countries agreed to limit global warming to well below 2°C above pre-industrial levels through nationally determined contributions. The agreement also set an ambitious goal of achieving net-zero emissions by 2050, which would require limiting temperature increases to a maximum of 1.5°C.

Energy transition and decarbonization remain key levers

A decade later, this ambitious goal is under serious question. Current measures are projected to lead to a global temperature increase of approximately 2.8°C by 2100, according to scientific forecasts. Nevertheless, from our perspective, the agreement represents a success story for investors interested in the energy transition theme (see video above). For the first time, the Paris Agreement established a globally binding framework with goals and regular reviews. This fostered widespread awareness and action, accelerating the transition to renewable energy and the adoption of electric vehicles, among other advancements.

This action has had a measurable impact on the core goal of the agreement: slowing global warming. According to calculations by the International Energy Agency (IEA), without the agreement, the climate would likely have warmed by 3.6°C by the end of the century.

The most important lever remains the energy transition and the decarbonization of the global economy. Significant shifts in investment flows in energy supply and usage have occurred since the Paris Climate Agreement (see chart below). According to IEA estimates (https://www.iea.org/reports/world-energy-investment-2025 ), investments in clean technologies are expected to reach approximately USD 2.2 trillion in 2025. During the same period, investments in fossil fuels have decreased by one-fifth, down to an estimated USD 1.1 trillion.

Energy Transition with significant impact on investment flows (Development of Global Energy Investments, in USD billion)

Growth is clearly concentrated in climate-friendly technologies, driven by the energy transition. The following shifts are particularly noteworthy:

• Renewable Energy: According to IEA data, this sector has experienced the most significant investment growth over the past decade, with volumes increasing from USD 374 billion to USD 780 billion. This is also reflected in their growing share of global electricity production – IEA estimates suggest that renewables could account for 35% of global electricity generation by 2025. The year 2025 may also go down in history as the first year when more electricity was generated from renewable sources than from coal.
• Grids and Storage: The energy transition has driven record investments in battery storage and power grids, particularly in industrialized countries, to keep pace with changes in the electricity sector and electrification (see below). In its latest energy investment report, the IEA estimates these expenditures for 2025 at around USD 240 billion. According to the agency, this amount would need to double by 2050 to stay on the current decarbonization path. The energy storage sector is also developing rapidly. Battery costs have dropped by two-thirds over the past decade, while global spending on battery storage is approaching the level of investments in gas power plants, according to the IEA.
• Energy Efficiency: As calculated by the IEA, new onshore wind and photovoltaic installations are, in most cases, a more cost-effective option for electricity generation than fossil fuels. Artificial intelligence (AI), sometimes criticized for being energy-intensive, could also contribute significantly to more efficient energy use and thus to reducing greenhouse gas emissions. As we have previously analyzed, the net effect of AI on CO₂ emissions is likely to be positive in the medium term.
• Electrification: By 2050, global electricity demand could double or even triple, corresponding to an annual growth rate of 3% to 4.5% – likely outpacing expected global economic growth. From a sustainable investment perspective, this is interesting for several reasons. Firstly, electrification can promote decarbonization, thanks to electricity generated from renewable energy and higher energy efficiency. Additionally, electrification promises to reduce dependence on fossil fuels, thereby enhancing energy security.
  

The already observed shift in investment flows suggests that the energy transition offers exciting potential from an investment perspective. Companies that contribute to this transformation with their products and services could, in our view, experience above-average growth.

Energy Transition: Keeping a Close Eye on Returns on Capital

For investors, however, it is crucial not to lose sight of quality: in our view, companies must grow profitably and earn their cost of capital to create value for investors. We have already outlined how this can be achieved. Therefore, investors focusing on energy transition should prioritize returns on capital (see video above).

Our sustainable equity strategy, launched in 2007 and focused on the investment theme of decarbonization and climate protection, has demonstrated over the past ten years that the energy transition can outperform both the MSCI World global equity index and the traditional energy sector – provided that returns on capital remain a primary focus (see chart below). We are confident that such a strategy has the potential to outperform the market over the next decade as well.

Focus on energy transition delivered above-average Returns over the past decade (Performance in % as of 30.11.2025, gross in EUR)

Investment theme «Climate»: Insights