Conflict pushes sustainable solutions up the agenda

Conflict in the Middle East has raised the need for more diverse energy supplies and more secure supply chains, pushing sustainable solutions further up national agendas. As geopolitical tensions meet rising energy demand, the momentum behind renewable technologies is set to accelerate further, reinforcing our convictions in sustainable energy. In the future, economic needs and a push for greater autonomy will support investments in energy, food and water security.

The policy headwinds for sustainable investment intensified in 2025, following the US withdrawal from the Paris Agreement, the scaling-back of the European Union’s sustainability disclosures and a disappointing United Nations ‘COP30’ summit. Yet global renewable-energy investment has continued to grow, supported by the electricity needs of artificial intelligence and rising capital expenditure from ‘hyperscalers’. As a result, clean-energy equities outperformed the MSCI World global market index in 2025, as witnessed by the 33% return measured by the Bloomberg GS Clean Energy index, and the segment has remained resilient year-to-date.

Even before the current conflict, energy security had become a strategic priority. Russia’s invasion of Ukraine in 2022 forced Europe to pivot from Russian gas to liquefied natural gas (LNG) and rely more on renewable energy and nuclear. China has expanded power generation for over 15 years to strengthen its strategic autonomy in a push for cheap and abundant electricity. That has already built a key advantage in its strategic AI competition with the US.

Today’s Middle East conflict further heightens these energy security risks, particularly for fossil-fuel-importing economies in Europe and Asia that are vulnerable to supply disruptions or price shocks. Under our base case we expect the conflict to remain relatively contained. However, damage to energy infrastructure can create longer-lasting impacts and volatility. Last week, the head of the International Energy Agency (IEA) said that the crisis would lead to policy changes worldwide, comparable to decisions in the 1970s to invest in nuclear power generation, and stressed the role that decentralised, low-carbon energy can play in strengthening autonomy.

The head of the International Energy Agency said that the crisis would lead to policy changes worldwide

A clean energy push in Europe and China

Earlier this month, the European Union launched a clean-energy investment strategy and its ‘Industrial Accelerator Act’ to boost renewable financing, de-risk projects and strengthen domestic clean-tech competitiveness. The ‘RESourceEU and Critical Raw Materials Act’ in December 2025 also aimed to reduce dependency on China and expand Europe’s energy-storage and battery-recycling capacities. Just this week, the EU signed a trade agreement with Australia, improving access to its critical minerals.

China reaffirmed its commitment to renewables earlier in March at its National People’s Congress, targeting a ‘new energy system’ and pledging to generate 25% of its energy consumption from non-fossil sources by 2030. Renewable energy sources already accounted for 56% of all installed power capacity in China in 2024, and are expected to represent a rising share over this decade.

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Broader supply-chain concerns may boost demand for other energy sources. Countries reliant on gas for power generation, including India, Indonesia and Vietnam, may temporarily switch to coal. Japan restarted the world’s largest nuclear power plant in January, and the IEA projects in some of its scenarios that global nuclear capacity may more than double by 2050.

Broader supply-chain concerns may boost demand for other energy sources

Still, alternatives are becoming ever more competitive. In January, for example, Saudi Arabian solar energy projects generated power at less than one-fifth of the cost of natural gas-based electricity in the US or Europe. Solar installations are also rising in many African countries. As scale increases, costs should fall further, mirroring the near 90%-decline in lithium-ion battery prices over the past decade.

Surging petrol prices and EVs

The adoption of electric vehicles (EVs) diverged across regions in 2025. While China surpassed 50% of EVs (plug‑in hybrid and battery EVs) in new car registrations, thanks to strong supply chains and innovation, Europe’s market stagnated amid reduced subsidies and affordability concerns. The US market cooled, with hybrids gaining share amid charging-infrastructure uncertainty. A prolonged period of higher petrol prices would revive interest in EVs, while structural support should continue for charging networks and batteries.

The threshold at which EVs near the total cost of ownership (TCO, defined as the full cost of buying and operating a vehicle) of petrol cars for everyday drivers in the US is around USD 4 per gallon, BloombergNEF estimates. Petrol prices for US drivers have risen more than 30% since the beginning of March, nearing this price last week. The US, as the world’s largest oil producer, is therefore not shielded from the effects of the conflict, and lasting disruptions to the global oil market are likely to renew interest in EVs.

Lasting disruptions to the oil market are likely to renew interest in EVs

Food security

The Middle East conflict is pushing up not only fuel prices but also has the potential to disrupt food supply chains, as fertiliser shortages threaten agricultural output. These effects may take many months to work through global markets. Approximately one third of globally-traded urea fertilisers, which provide nitrogen to soil, pass through the Strait of Hormuz.

The fertiliser shortage is one more headwind on top of a long-term trend of soil depletion and crop yield disruption caused by the adverse effects of both industrial agricultural practices and climate change.

A combination of regenerative practices and precision agriculture tools offer attractive long-term opportunities for investors as they can reduce negative environmental impacts while increasing crop yields. Precision agriculture integrates technology in the form of big data analytics, soil sensors, drones, robotics, AI, internet-of-things tools and predictive modelling. AI and machine learning help farmers identify areas of soil compaction, nutrient deficiency, moisture stress or pest invasion and calculate fertiliser, pesticide and water application rates, depending on the exact location. This improves sustainability, resource efficiency and productivity. As of 2024, more than half of farmers globally had adopted or intended to adopt at least one precision agriculture technology.

Positioning sustainable investments

The 2022 energy shock weighed on clean energy indices for 18 months. Today, conditions are very different. Monetary policy is more supportive, although last week central banks signalled greater caution over the conflict’s impacts on the path of inflation and are likely to postpone their rate cuts or keep rates on hold this year. In 2022, central banks were at the beginning of a global tightening cycle, justified by buoyant job markets.

Valuations are also less demanding

Valuations are also less demanding than in 2022, and after the hedge fund unwinding seen in recent weeks, current volatility can offer attractive entry points into a long-term structural trend backed by both public and private capital.

Earnings growth across the electrification theme, from utilities to components, smart-grid developers, energy storage and renewable-infrastructure operators, is expected to accelerate in 2026. Before the start of the conflict, this was already supported by unprecedented AI-related power demand and capital expenditure by large cloud providers and other so-called ‘hyperscalers’. Most of these firms are cash rich, and likely to look through short-term uncertainties. The comparative advantage of these alternative power sources is further underlined by today’s geopolitical tensions.

With disruptions to vital energy resources from the Middle East now an urgent priority for the global economy, governments and investors are likely to intensify their efforts to build resilience across energy, food and water systems. This can only further catalyse the transition to alternative energies and sustainable solutions.