CONTRIBUTORS
Craig Cameron, CFA
Portfolio Manager, Research Analyst,
Templeton Global Investments
Continuation of positive trends from 2025
In late 2024, many investors expected a broad row-back on climate-related policies during 2025. While some of those concerns did materialise, that negative news flow now sits behind us. Meanwhile, corporate behaviour has proved more resilient than the regulatory backdrop might have implied.
Although political rhetoric has shifted, it is significant that corporate climate targets have not followed suit. Large companies continue to push ahead with electrification efforts, supply-chain decarbonisation and long-term net-zero plans. Hyperscale technology firms have been particularly consistent on this front. Alphabet, for example, recently supported proposals to strengthen power-emissions disclosure standards, underscoring a continued commitment to long-term climate goals, even as other parts of the market retreated from them.
And so, despite the noisy political backdrop, the energy transition continued to strengthen through 2025. Renewable installations reached new highs, electric vehicle (EV) adoption continued to rise, and the rapid build-out of data centres sustained demand for power equipment, storage and energy efficiency investment. Order patterns across renewable supply chains became steadier, and technologies linked to efficiency and electrification enjoyed a more predictable flow of demand. These trends point toward further progress in 2026, when both renewable deployment and EV penetration are expected to increase again, and when the substantial investment in artificial intelligence (AI) should begin to produce more tangible gains.1
Regional tailwinds for 2026
Conditions across the major regions are beginning to look more supportive for the transition. In the United States, the regulatory environment is not yet fully settled, but a workable framework is now in place. Projects across various clean technologies can progress with more confidence than was possible a year ago. While the near-term outlook for EV sales in the US remains softer, this segment represents only a small share of global EV demand. Other parts of the US market are showing far more momentum. Energy storage and battery installations are expected to grow strongly in 2026, building on the rapid expansion already underway and supported by utilities’ focus on system reliability.
Europe is also entering a period of meaningful fiscal support for climate and infrastructure. Several countries have announced large investment programmes, and the scale of activity in Germany stands out. The proposed German stimulus package allocates well over one hundred billion euros to decarbonisation efforts spanning electrification, grid upgrades and public-sector initiatives. These commitments sit alongside separate funding streams for defence and broader infrastructure needs. Combined, they point to a sustained period of elevated capital spending across the region. Upward revisions to European GDP expectations reinforce this backdrop, providing a more stable demand environment for companies that supply equipment and services linked to the transition.
Market broadening and macro conditions
The broader economic backdrop for 2026 points toward a more evenly distributed pattern of growth. The current economy, with areas such as data centres and AI experiencing exceptional momentum while several industrial and climate-linked sectors work through the bottom of their cycles, may soon broaden out. Inflation is continuing to move lower, interest rates are falling in the United States and stabilising in Europe, and employment conditions remain relatively resilient. These shifts create a foundation for capital-expenditure-driven growth that reaches beyond the narrow set of beneficiaries that dominated 2025.
As interest rates decline, the economics of long-duration climate infrastructure improve. Projects in renewables, grid reinforcement and storage, which had slowed under tighter financial conditions, can be financed on more attractive terms. The same logic applies to efficiency investments and electrification infrastructure, both of which rely on predictable funding environments. A period of interest-rate stability in Europe and gradual declines in the United States should allow companies to plan with greater confidence than was possible during the tightening cycle.
The steady easing of cost pressures supports margins in capital-goods industries and lowers input volatility for project developers, helping to rebuild confidence across supply chains. With both pricing pressure and financing costs moving in a more constructive direction, activity that had been deferred in 2024 and early 2025 has a clearer path back.
These macro conditions, combined with the normalisation seen in several climate-related subsectors, increase the likelihood that market participation broadens in 2026. A wider range of companies should begin to benefit as the economic environment becomes more supportive, rather than only the digital-infrastructure and AI-adjacent firms that dominated market leadership last year. This broader base of activity would mark a shift from the recent cycle and provide a healthier backdrop for the transition as a whole.
Other themes likely to influence the year ahead
- The world is expected to cross the 1.5-degree warming threshold - This milestone is likely to focus attention on adaptation and mitigation efforts and could influence the pace of transition planning among policymakers and corporates.
- Deglobalisation continues to shape the landscape - Tariff measures in the United States, China’s focus on domestic demand and Europe’s increasingly strict regulatory standards all point toward more regional supply chains and less reliance on global integration.
- Power-market tightness is becoming a more significant feature - Rising electricity demand from data centres, electrification and AI is placing pressure on grids and reinforcing the need for investment in storage, generation and digital infrastructure.
- Energy independence remains a strategic priority - Several regions, particularly Europe and parts of Asia, are directing capital toward technologies that reduce exposure to imported fuels, including renewables, storage and efficiency solutions.
- New technologies continue to emerge - Early advances in storage chemistries, materials and grid-management tools, as well as the use of AI to improve energy efficiency, have the potential to strengthen the economics of the transition.
Endnote
- These outcomes may be uncertain and subject to change.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
Companies in the infrastructure industry may be subject to a variety of factors, including high interest costs, high degrees of leverage, effects of economic slowdowns, increased competition, and impact resulting from government and regulatory policies and practices.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.
The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries.
There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalisation, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.
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