What’s the $20T climate theme that’s outperforming other strategies?

investmentnews.com:

One of the dullest themes in climate investing was nevertheless one of its most profitable last year.

While investments in wind and solar mostly resulted in losses in 2023, fund managers who piled into companies tied to the electrical grids that distribute clean energy enjoyed double-digit returns. The Nasdaq Clean Edge Smart Grid Infrastructure Index ended last year up more than 20%, led by companies such as Eaton Corp., ABB Ltd. and Schneider Electric SE, compared with the more than 20% decline of the S&P Global Clean Energy Index.

Analysts at the Global Wealth Management unit of UBS Group describe the grid, along with assets tied to waste management, as clear “bright spots” for green investors. 

Electricity grids will require at least $21.4 trillion of investments by 2050 to support a global net-zero trajectory, according to estimates from BloombergNEF. BNEF analyst Lara Hayim wrote in a recent research note that the grid is the linchpin upon which the fate of the energy transition hinges, with the current investment shortfall emerging as a “bottleneck.”

“Grid stocks should do very well, but many things like transformers are already sold out,” said Andrew John Stevenson, a senior analyst at Bloomberg Intelligence. He said the grid “is the easiest thing” in the Biden administration’s Inflation Reduction Act into which investors can “pump big dollars.” 

The importance of the electricity grid “is growing as demand for clean electricity grows,” analysts at Jefferies Financial Group Inc. wrote in a Jan. 11 note following a client event at which the investment bank hosted the International Energy Agency. By 2040, expansion of grids needs to reach double the level seen over the past two decades in order to meet the needs of