Transition investing: Where alpha meets climate goals

Climate change remains one of the most serious issues of our time, despite geopolitical and economic issues dominating current headlines. In recent years, the energy transition that can slow climate change has fortunately seen enormous progress: record levels of renewables installations, the sharp comeback of nuclear energy, decarbonization efforts across transportation, real estate and hard-to-abate sectors, to name a few. All this progress has even defied an often erratic or outright hostile policy environment and the cherry on the cake was a rebound in related stocks in 2025.

Clearly, there are numerous examples where decarbonization efforts have moved very slowly or stalled in some jurisdictions, including offshore wind, carbon capture and alternative foods. In the end, economics dominate the success rate of any climate solution. Instead of projecting dramatically plunging decarbonization cost curves, a more level-headed approach is necessary to assess where real opportunity can be found. In a follow-up to our earlier study,² we again tested our thesis that the net-zero journey requires a broad-based diversified approach across the climate solutions space, led by so-called transition leaders across low- and high-impact sectors.

In the first section of this article, we’ll touch on the various climate solutions buckets and how they’ve fared in recent years from an alpha perspective. The second section will then look at the performance of transition leaders and laggards.

Decarbonization pathways across sectors differ in pace and type of investment.³ Rather than taking a position on what the best pathway is to limit the global temperature rise, we research the climate universe in-depth to identify the most attractive investment opportunities across a variety of decarbonization-critical climate solution categories. Figure 1 provides such an overview.

Clearly, capital deployment will not be synchronous across regions and industries, though it is critical all sectors do actively contribute to the transition in a concerted way. For example, cement producers teaming up with chemical companies to reduce the clinker-to-cement ratio, and utilities switching to lower-carbon energy sources and carbon capture technology providers.

To find the most promising areas for alpha potential, we delved into a wide range of climate solutions to see how they’ve performed over time. To compare the historical returns of all climate solutions, we took into account the homogeneity of some solutions and re-grouped them into 17 baskets based on a combination of industry and solution types. Our sample contains around 690 stocks seen as climate solution providers across both developed and emerging markets. We calculated the annualized total return of each solution basket over the past three, five and ten years, and compared the returns to that of the MSCI ACWI for the same periods. This way we believe we can capture the long-term, through-the-cycle performance of such solutions, but also see how they fared across different macro backdrops over time.

It follows that solutions including ‘Building energy efficiency’, ‘Energy efficiency’,⁴ ‘Energy storage’, ‘Nuclear energy’ and ‘Transition facilitators’⁵ outperformed the MSCI ACWI over both three- and ten-year horizons (see Figure 2). However, solutions such as EVs and waste management that outperformed over the ten-year period, lagged in recent years. Such divergence in historical performance can either be explained by dwindling regulatory support or losing consumer momentum (e.g., electric vehicles), or lack of cyclical ‘torque’ given the strong equity market backdrop (e.g., waste companies).

Climate solutions that have proven to be more resilient through cycles tend to be those of higher quality and less prone to regulatory interference. For example, Big Tech companies represented in the ‘Transition facilitators’ bucket enjoy strong competitive moats and spend significantly on clean tech developments across the value chain.⁶ Other such compounders can, for example, be found within the ‘(Building) Energy efficiency’ solution baskets. We therefore are structurally overweight solution providers that fit well with the quality characteristics that correlate most to alpha over the long term.

On the other end of the spectrum sit the clean technologies and infrastructure-related solutions. These are generally businesses that operate in a highly competitive environment, are more prone to technology iterations, carry high capital intensity and/or are more sensitive to policy changes. Over time, also nature-based solutions, such as Forestry investment companies, struggled as subdued end-markets, residential property in particular, depressed performance. Nonetheless, many of these solutions play a critical role in enabling the energy transition but they are not always the ideal candidates to invest in. However, if we see undervalued alpha potential we do not shy away from investing in those areas. Scanning our solution universe through multiple lenses is one way to find alpha when investing in the energy transition.

Interestingly, over the past three years we’ve seen a strong outperformance of the ‘Nuclear energy’ basket, as the realization that getting to net-zero without the help of nuclear is increasingly difficult, fuelling a renewed interest in this neglected space. The improved performance of the ‘Power infrastructure’ bucket also makes sense: without the necessary picks and shovels, cable transmission lines and related electrical equipment, it’s not possible to get to net-zero.

Going forward, we’re slowly moving away from a period where high interest rates caused financing issues for many renewables-related infrastructure projects and early-stage decarbonization technologies. Growth fundamentals in combination with a more favorable rate environment and a cleansed valuation set-up anticipates the next climate investment revival. Recent market sentiment toward climate investing supports this view (see Figure 3).

We’ve done a repeat exercise for so-called climate transition leaders, i.e. companies that set the example in decarbonizing toward net zero. An example of a transition leader would be a steel producer that backs up its net-zero target with a credible decarbonization investment plan that brings it on a pathway in-line or better than its sector would strictly dictate. With our in-house Climate Analytics toolbox, we’ve developed a science-based framework to identify such transition leaders. Conversely, in our so-called ‘Climate Traffic Light’ system we also penalize transition laggards (i.e., companies that are partially aligned or misaligned) by not automatically including them in our investable universe. An example here would be an industrial machinery company that fails to come up with any plans to redirect capital flows toward what’s needed to become Paris-aligned over time.

To find out how companies’ transition profiles are associated with their historical returns, we separated the universe of 10,000 stocks into the two groups of transition leaders and laggards. Do note there can be some degree of survivorship bias in the sample of our return calculation as we only have the Traffic Light assessment of companies today, not historically. Nonetheless, considering a company’s transition profile can be rather static and a qualitative indicator, we think our analysis does provide reference value for future studies.

By comparing the past three- and ten-year equal-weighted performance of transition leaders versus laggards (see Figure 4), we clearly see that transition leaders have outperformed during both time periods, and when dividing the groups further into low- and high-impact, the low-impact transition leaders outperformed low-impact laggards, but also the high impact group. The divergence in the historical returns among these groups could well be linked to a study done by Robeco’s Quant Equity team on alpha signals based on the resource efficiency of companies.⁷ It pointed out that more resource-efficient companies not only yield higher-than-expected alpha than their resource-inefficient peers, but are also associated with a reduction in a portfolio’s overall environmental footprint.

Within our sample universe, over 80% of companies in the energy, material, real estate and utility sectors (traditionally more asset heavy industries with lower asset turnover) are categorized as high-impact companies. Moreover, a greater proportion of high-impact companies are not yet on the right pathway to be aligned with the Paris goal. Investing in climate transition leaders in the high-emitting industries allows us to capture the upside from their improved resource efficiency, reduced environmental footprints, as well as their improved access to capital markets and lower cost of capital. A steel company aiming to get to net-zero by investing in ‘green steel’ using, for example, recycled scrap metals, supplemented with carbon capture technology and clean energy, would fit this bucket.

Another angle we explored was the return difference between transition leaders and laggards in both developed markets (DM) and emerging markets (EM; see Figure 5). Interestingly, we see that although transition leaders tend to outperform laggards within both DM and EM, the DM laggards still outperform the entire EM group. We acknowledge sector biases play a role here, with asset-light and highly profitable sectors dominating the DM universe.

At a more granular level, it appears the best performing cohort of stocks in DM are the leaders in low-impact sectors. Examples of the former would be Big Tech companies with ambitious net-zero plans, most of whom invest heavily in clean energy, a positive ‘side-effect’ consequence of large investments poured into energy-hungry AI. Notably, leaders in high-impact sectors have outperformed laggards in both low- and high-impact sectors.

In EM, we do see a similar relationship given the outperformance of leaders over laggards. Interestingly, underlying data indicates a stark underperformance of laggards in low impact sectors, whereas the other cohorts have showed similar performance. This might be explained by the fact that EM is more of a value-oriented market with higher-impact sectors such as utilities and energy being historically a much more dominant part of the market versus DM.

All in all, our research findings suggest that transition leaders have historically outperformed laggards. This seems to not only hold true both in developed markets and emerging markets, but also within both higher emission and lower emission sectors. These insights support our thesis that investing in climate transition leaders is an attractive way to capture alpha as they also tend to feature favorable quality characteristics often rewarded by the market.

Footnotes

¹ Climate leaders outperform the laggards as solutions firms struggle – Robeco – July 2025
² Transition investing: Exploring alpha potential – Robeco July 2024
³ Charting a realistic path toward net zero – Robeco October-2023.
⁴ For example, more general industrial exposure outside of the specific Building category
⁵ For example, green capital providers, environmental consultancy firms and science hubs
⁶ Hey Big Spender: Powering the climate transition with capex investments – Robeco - October 2025.
⁷ Have your cake and eat it, too: Finding alpha in sustainability – Robeco - June 2023