Climate change has become a defining force in geopolitics. As governments respond to record heat waves, floods, wildfires and droughts, their policies and economic posturing are reshaping manufacturing, trade and energy security across the capital markets. This makes global warming as much a financial risk as a physical one, with policy shifts repricing risks and opportunities across countries and companies alike.
Energy Security Moves to the Foreground
Energy security and climate policy are increasingly inseparable. Clean technology suppliers benefit from powerful structural tailwinds but also face cyclical risks tied to overcapacity and policy shifts. Meanwhile, fossil fuel exposure carries geopolitical risk and sensitivity to price swings, even when near term demand remains firm.
Case in point: Germany was an early leader in renewable energy, but its continued reliance on Russian gas left it exposed when supplies were cut following Russia’s 2022 invasion of Ukraine. Its economy has lagged the EU since.
More recently, oil price shocks from the conflict in Iran are rippling through global economies. Even if temporary, such disruptions can continue to reprice risks across energy markets and create lasting inflationary pressure. In our view, conflict in the Middle East underscores how dependence on fossil fuels can expose existing vulnerabilities when geopolitics intervene.
Geopolitical Footprints in Renewable Energy
We think renewable energy is well positioned to meet geopolitical challenges and opportunities. Globally, renewable energy deployment continues to grow, hitting a record $2 trillion in 2025.
Renewable assets require higher up-front capital, making financing conditions, interest rates and policy certainty critical. Throughout Africa, for example, the cost of financing projects comprises the lion’s share of electricity costs generated from wind and solar, while in North America the up-front capital cost of building those assets is the dominant driver.
Once built and paid for, however, renewable assets incur minimal operating costs and fuel-price risk. Cost avoidance also factors into renewable energy’s bottom line. China, for example, avoided $441 billion in fossil fuel burning and pollution damage costs in 2024 (Display).
