It might surprise you to know that in 2025 clean energy stocks outpaced both AI stocks and the Magnificent Seven tech stocks. Despite the government’s efforts to turn back the clock on climate change legislation, there’s a good chance this upward trajectory of this sector will continue in 2026. Here’s why:
- Despite the US exiting the Paris Climate Agreement again in January 2026, states are continuing to focus on becoming more sustainable. This is true partly because they are recognizing the threats climate change poses but also because investors are starting to price-in risk related to climate-change. This is especially true for insurance, municipal bonds, and commercial real estate. The increased pressure from investors is pushing states to invest in sustainability efforts in order to keep capital from fleeing. Wildfire‑prone states are moving power lines underground and flood‑prone states are investing in seawalls, pumps, and surge barriers. Many states are accelerating projects in solar, wind, and battery storage. Building efficiency standards are being updated and heat‑pump programs are becoming more common. Some states are using federal funds to upgrade infrastructure like roads, bridges and water systems to better acclimate to climate change. This includes some western states that are investing in drought resilient water systems and conservation technology to combat their ever-increasing water deprivation issues. An example of a company making such an investment is a European company named Novalis. They are an aluminum facility that in 2024 was shut down for four months due to severe flooding. The loss caused them over $100 million in losses and it disrupted European supply chains. After recovering from the flood they found that implementing a $1.3 million three-foot barrier would provide 27x ROI (Return on Investment) and a $5.1 million seven-foot barrier would result in as much as $92 million in long-term savings. These numbers show how important such adaptations really are.6
- A study by First Street’s Chief Economist Dr. Jeremy Porter estimates that without sustained investment, adaptation and resilience to climate-change the cost to the overall productivity for the US is estimated as $2.5 trillion by 2100. That same report states that the nations, states, cities and municipalities that are building resiliency and adaptation to both the acute damaging climate risk (wildfires, winds, floods) and chronic climate-risk (air quality, droughts, and extreme heat) are what make the areas more livable and desirable for people and companies to be located. 7 Based on the laws of Supply and Demand, if the demand is higher to live in these places then they are more likely to survive rather than decline over time.
- US companies are rushing to begin construction on wind and solar projects in the first half of 2026 so they can take advantage of tax credits that end July 1, 2026 as a result of the changes made by the OBBBA (One Big Beautiful Bill Act). 2 Unrelated to the tax credits ending, 45% of US companies have a commitment to a net-zero target which will continue their trajectory of increasing sustainability efforts regardless of tax incentives. 5
- Businesses and investors alike are focused on the physical effects of climate change, such as the potential of floods, hurricanes, and droughts because they tend to be the most expensive. In fact, according to Dr. Jeremy Porter, flood risk is the most immediate climate threat to global asset values and it is the costliest disaster. It was found that 80%-85% of all damages globally in the last 20 years have all been flood-related.7 Companies that choose to ignore climate change threats are more vulnerable to their damage and are setting themselves up for loss.
- Internationally, many countries are implementing and using clean-energy sources. In general, the European economy is investing more than €2 trillion ($2.3 trillion) in their electrical grid and clean-power. As an example, Germany has a €500 billion off-budget infrastructure fund with a 12 year term to spend €100 billion for climate-related investments via the Climate and Transformation Fund.8 Emerging markets such as China, India, and Saudi Arabia are investing in clean energy. In 2025 India installed more renewable energy infrastructure than fossil fuel, China installed more solar and wind than the rest of the world combined, and Saudi Arabia has launched a multibillion-dollar Greenfield solar project.2
- Data centers are rapidly popping up all over Europe because of large tech companies like Microsoft, Google, and Amazon. 3 Morningstar, a 3rd party investment analysis company, projects that data centers will require three times their current electrical demand by 2030. 3 This additional energy demand requires countries to enhance their utility grids, which green energy can often solve easily and quickly.
Clean‑energy’s momentum in 2025 was a signal. Even as federal policy shifts and political headwinds create uncertainty, the underlying forces driving green, climate-change-aware investments are structural, global, and increasingly urgent. States are adapting because the cost of inaction is high, companies are investing because climate risk is now a financial risk, and nations around the world are accelerating clean‑power usage. With data centers multiplying, infrastructure modernizing, and both public and private capital flowing toward resilience, the demand for renewable energy and climate‑adaptation solutions is only growing. As usual, there are no guarantees in the markets and this may prove to be a slow, long term trend. But there is no denying that it’s a trend, and ignoring it could prove to be a detriment to your bottom-line.
1 Msika, Michael and Jaisinghani, Sagarika. “Last Time Strategists Were This Bullish, European Stocks Tanked”. 12 Dec 2025. https://www.fa-mag.com.
2 Dahl, William. “2026 Could Be a Banner Year for Clean Energy Stocks: 1 Fund to Buy Today”. 21 January 2026. MotleyFool.com.
3 Bioy, Hortense. “5 Sustainable-Investing Trends to Watch in 2026.” 17 December 2025. Morningstar.com.
4 Morningstar Sustainalytics. Sustainable Investing Trends to Watch in 2026.
5 MacFarland, Matt, Trapletti, Patrizio and Freyer, Drew. “Net-Zero commitments are still the exception, not the rule.” 7 May 2024. https://www.spglobal.com.
6 First Street. “Novelis Case Study-Climate Resilience: Turning Risk Into Return. How Flood Adaptation Pays Off at Novelis’ Sierre Facility.” 2025.
7 Porter, Dr. Jeremy. “Climate Risk: Strategies to Identify, Assess, and Manage Risk Across Global Markets.” MarketsGroup Webinar. 27 January 2026.
8 Goldberg, Silke. “Germany’s ambitious fiscal reforms: what Germany’s €500 Billion plan could mean for infrastructure investors”. Lexology.com. 22 March 2025.