The huge investment opportunity in Climate and Clean Technologies

The global shift towards decarbonisation is one of the largest capital reallocations in modern history, and it is still in its early stages. From an investor’s perspective, this transition allows them to participate in businesses making a positive impact on society more broadly, while investing in a long term structural growth opportunity.

At ELM Responsible Investments, we invest in climate and clean energy companies, not by chasing labels like “green” or “sustainable,” but by applying the same disciplined process that underpins our broader investment framework. We focus on identifying structural shifts that are likely to drive demand over many years.

Across the fund we look for:

• durable growth drivers

• businesses with competitive advantages and barriers to entry

• sensible capital allocation and strong balance sheets.

Within climate and clean technology, we currently focus on companies that are exposed to long term demand growth from two main drivers:

• electrification of transport

• AI data centre buildout.

These drivers are supporting demand for our holdings in renewable energy, electric vehicles, battery manufacturers and a subset of climate and clean tech companies that are direct beneficiaries of AI data centre growth. 

Durable growth driver: Electrification of transport

The first durable driver is the electrification of transport. This is a multi decade transition that is still in its early stages.

The process began with passenger electric vehicles and is now extending into:

• commercial trucks and delivery fleets

• buses and public transport

• and, over time, autonomous electric fleets, including robotaxis.

Electrification has two main effects. It increases demand for electric vehicles themselves, across consumer, commercial and autonomous segments. It also increases demand for EV batteries and the grid and storage infrastructure required to support them.

At present, EVs remain a minority of the global vehicle fleet, but their share of new sales continues to rise, supported by improvements in vehicle range, charging networks and, in some markets, policy support. Higher and more volatile oil prices, exacerbated by geopolitical risks, add a further incentive to reduce dependence. Today’s situation is different in an important respect as alternatives such as EVs, solar and battery storage are now cost competitive, so a prolonged period of elevated oil prices and heightened energy security concerns is more likely to accelerate the shift towards electrification and away from oil, than in past crises.

As EV penetration increases, so does electricity demand from transport, particularly in high utilisation categories such as commercial fleets and potential robotaxi networks, where vehicles are used for many more hours per day than privately owned cars. This leads to:

• higher demand for batteries

• more frequent battery replacement in high mileage vehicles

• and greater need for flexible grid capacity and storage.

This dynamic directly benefits our holdings in Contemporary Amperex Technology Co., Limited (CATL) and Tesla:

CATL is the world’s preeminent battery manufacturer, distinguished by its immense scale, cost leadership, and chemistry innovation. The company currently supplies roughly four in ten EV batteries globally, and recently achieved a milestone in China by capturing over half of the domestic market.

Beyond automotive, CATL is the global leader in energy storage, providing approximately one third of all stationary battery shipments worldwide. Management has identified this segment as a primary driver of margin expansion and a second growth curve, particularly as demand for grid scale stability and AI data centre power solutions continues to accelerate.

Tesla has evolved beyond its role as an EV manufacturer, emerging as a vertically integrated energy and software platform. On the hardware side, its Megapack grid scale storage systems are being deployed globally to support grid stability and the high reliability requirements of AI data centres. This segment is scaling rapidly, with deployments growing at nearly 50% year-on-year and gross margins now reaching ~30%, outperforming the automotive business and reinforcing its role as a fundamental driver of long term compounding.

This strategic shift is underpinned by a global manufacturing footprint that now spans automotive (including Cybercab and Tesla Semi) and  grid‑scale storage, with installed annual capacity across each of these product lines summarised in the chart below.

At the same time, Tesla is executing a pivot toward a high margin service model. With the mass production of its dedicated robotaxi (the Cybercab) now in the tooling phase at Giga Texas, and the transition of its Full Self-Driving (FSD) technology to a subscription only model, the company is positioning itself to capture recurring revenue across its global fleet. By leveraging an installed base of millions of vehicles, Tesla is shifting from one time hardware sales to a platform that monetises autonomous mobility and energy services at scale.

We expect the electrification of transport, particularly in commercial and other high utilisation segments, to support demand for electric vehicles, autonomy software, batteries and grid scale storage for many years.

Durable growth driver: AI data centre buildout

The second durable driver is the buildout of AI and high performance computing data centres.

AI models and high density computing require significant power, cooling and water. As these facilities scale globally, they are increasing demand across several parts of the climate and clean tech value chain.

There are three main effects.

1. Higher electricity demand and new supply

AI data centres consume large amounts of power. This is leading operators and hyperscalers to seek long term access to reliable, and in many cases renewable, electricity. Many of the largest operators are signing power purchase agreements with renewable asset owners.

Our holding in Ørsted is an example of a company exposed to this trend. Ørsted develops, builds and operates offshore wind farms and other renewable assets under long term contracts. Recent management updates have highlighted growing direct partnerships with large technology companies and long term power purchase agreements (PPAs) that link offshore wind projects to data centre and hyperscaler demand. Amazon and Google, for example, have both contracted long term offtake from Ørsted's 913 MW Borkum Riffgrund 3 offshore wind farm in the German North Sea. Perhaps most notably, TSMC, the world's leading semiconductor manufacturer and the company that produces the chips underpinning AI infrastructure globally, has signed a 20 year agreement to purchase the entire output of Ørsted's 920 MW Greater Changhua offshore wind farm in Taiwan. This provides more visibility on future cash flows and underlines the role of renewables in meeting new electricity needs.

Vestas sits on the manufacturing side. It designs, manufactures and services wind turbines globally. Recent results show a record order backlog, reflecting strong demand from utilities and developers planning new wind capacity. The size and diversity of this backlog provide a sense of how much incremental renewable capacity is being planned over coming years.

Together, Ørsted and Vestas are key suppliers of the incremental low carbon generation needed to meet rising demand from both electrification and data centres.

2. Demand for cooling, water and engineering solutions

High density data centres generate substantial heat and use large volumes of water for cooling. This is driving demand for:

• advanced industrial gases and support for semiconductor fabrication

• water treatment and recycling systems

• efficient HVAC and building engineering.

Our holdings that benefit here include:

• Linde, which supplies high purity industrial gases to semiconductor manufacturers and other advanced industries. Semiconductor demand for AI chips supports growth in this segment.

• Ecolab, which provides water treatment and efficiency solutions for industrial and data centre customers. Reducing water use and improving cooling efficiency lowers operating costs and helps customers meet sustainability targets.

• Legence, which focuses on HVAC and energy optimisation in buildings and data centres. Better cooling and system design can materially reduce electricity use in these facilities.

The rapid expansion of AI infrastructure has made the data center and semiconductor markets the fastest growing verticals for these companies. Ecolab management Ecolab sees AI data‑centre cooling as a major new growth leg, noting that the CoolIT acquisition will double its Global High‑Tech addressable market from about 5 billion USD to 10 billion USD and is growing at strong double digit rates. Linde similarly expects ongoing TAM expansion in its electronics business, supported by long term gas supply contracts to advanced chip fabs such as TSMC. Legence is positioning itself to benefit as hyperscalers and other large operators invest in HVAC upgrades and energy‑efficiency retrofits to handle higher rack densities and stricter carbon targets in mission critical buildings like data centres and high tech manufacturing sites.

3. Onsite and grid connected storage

Data centres often require a high level of power reliability. Traditionally this has been met with diesel backup. Over time, we expect more operators to use battery storage and other solutions to improve resilience and reduce emissions.

This is another demand source for battery manufacturers such as CATL and energy storage providers such as Tesla. It also creates opportunities for companies like Bloom Energy, which provides solid oxide fuel cells that can supply reliable onsite power and, in future, may be able to run on hydrogen.

IREN, which develops high performance computing data centres with a focus on renewable power and efficient design, sits at the intersection of data growth and cleaner electricity.

Renewables and storage: where the drivers meet

The electrification of transport and the massive infrastructure requirements of the AI era, are creating a permanent step change in electricity demand. Most of the incremental supply needed to meet that demand is being added through renewables, with some contribution from new nuclear in certain markets. As the share of variable wind and solar increases, the value of technologies that can firm this generation and support grid stability also rises.

Our holdings in Ørsted and Vestas are helping to build this new low carbon capacity. On the storage side, companies such as CATL and Tesla provide the batteries and systems that allow renewable energy to be shifted in time and used more reliably by the grid.

In combination, these businesses sit at the point where rising electricity demand from electrification and data centres is being met with new low carbon supply and the storage needed to integrate it.

The Long-Term Growth Opportunity

At ELM Responsible Investments, we don’t view climate and clean technology as a niche or values driven satellite. Instead, we see it as an investment that stands on its own merits, where durable demand and strong industry dynamics support the emergence of high quality compounders, capable of growing earnings over a multi year horizon. We believe the global shift towards decarbonisation is a structural growth opportunity that will play out over decades, not years. By applying the same disciplined, high conviction process that underpins our broader framework, we endeavour to identify companies where sustainable growth trends are mispriced.

Current drivers like the AI data centre buildout and the rise of commercial electric fleets are creating a permanent surge in demand for renewable generation and storage. As we are still in the early stages of decarbonisation, the opportunity for long term value creation remains significant. Our objective is to hold a select group of global growth equities that are not just making a positive impact, but are fundamentally positioned to compound value as the world transitions to a more efficient, electrified, and carbon free economy.