Yet, even as the world reels from these tragedies, recent geopolitical tensions and policy uncertainty have cast doubt on the continued relevance of carbon reduction.
Despite the noise, the transition to a more sustainable economy remains a defining structural trend of our time. Emissions are still rising globally, with no clear sign of the rapid decline needed to meet the Paris Agreement goals.
Last year, for the first time, global temperatures exceeded 1.5°C above pre-industrial levels — a stark reminder that progress is lagging. Investing in sectoral transformation In Asia Pacific, the industry sector — which includes direct fossil fuel use, indirect emissions from electricity and heat, and process emissions from chemicals, aluminum and cement — accounts for 23.6% of emissions, second only to electricity and heat producers.
These sectors are major contributors to global emissions but remain very much essential to modern economies.
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As we enter the next phase of global carbon mitigation, institutional investors are rethinking their strategies. Instead of avoiding high-emitting sectors like cement, steel, utilities and waste management, many are now investing in their transformation to advance climate goals while capturing long-term value.
Divesting from them may seem like a straightforward approach to portfolio decarbonisation, but this is not reflective of economic reality and risks sidelining the progress needed to reduce emissions in the real economy.
There is an increasing recognition that divesting from these sectors would remove the opportunity to influence transition strategies and forgo attractive investment returns from value-creative decarbonisation pathways.
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Instead, active ownership allows investors to engage with companies at a time when policy and market dynamics are creating new incentives for emissions reduction.
Decarbonisation can enhance valuation
A company’s approach to decarbonisation can significantly affect its valuation. Our experience across sectors such as cement, utilities and waste management shows that credible low-carbon transition strategies can materially enhance future cash flows while mitigating rising carbon costs.
Take the cement industry: rising carbon costs and regulatory uncertainty have weighed on share prices, yet the market misunderstands its long-term outlook. Cement remains essential to the global economy and is not in structural decline.
Decarbonising operations can unlock strong returns, as stricter environmental expectations reshape cost curves and reward early movers with “green premiums”.
Despite this, many players remain undervalued, presenting a compelling investment opportunity.
Utilities in Asia Pacific are slowly but surely increasing renewable power generation, supported by ambitious government targets.
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For example, Southeast Asia aims to meet more than two-thirds of its energy needs with renewables by 2050.
A key enabler of this transition is the Asean Power Grid, a regional initiative to interconnect national power systems across Southeast Asia. This integration not only supports the scaling of renewables but also creates new commercial opportunities for companies throughout the energy supply chain, opportunities that the market may not yet fully reflect in valuations.
The role of active ownership
This is where active ownership plays a crucial role. Engagement-based strategies are beginning to deliver measurable impact, measured in terms of both real economy emissions reductions and alpha generation as the market rewards these credible carbon reduction pathways.
Across Asia, there is growing momentum around engagement-led climate strategies. From a regulatory perspective, several Asian jurisdictions, particularly Japan, Singapore, Hong Kong and China, have introduced or strengthened sustainable finance taxonomies and climate disclosure requirements.
The Network for Greening the Financial System (NGFS) now includes numerous Asian central banks that are incorporating climate considerations into financial supervision.
In markets such as Japan, Malaysia and Singapore, revisions to stewardship guidelines are placing greater importance on how investors address climate issues in their engagement activities.
Among Asian asset owners, major sovereign wealth funds like Singapore’s GIC and Japan’s GPIF have strengthened their climate engagement approaches. Pension funds across the region show growing participation in collaborative engagement initiatives like Climate Action 100+. Insurance companies, particularly in Japan and South Korea, are increasingly active in climate risk management and engagement with their portfolio companies.
The Asian approach to climate engagement has distinct characteristics. Rather than opting for rapid divestment, stakeholders typically prioritise dialogue and collaboration, reflecting a preference for building agreement.
Support for industries with high emissions often centres on providing transition funding instead of simply excluding them. Initial engagement efforts frequently target improvements in transparency and oversight, laying the groundwork for more robust climate initiatives over time.
From risk to opportunity
Avoiding high-emitting sectors may reduce a portfolio’s carbon footprint on paper, but it does little to address emissions in the real economy. Many heavy-emitting sectors will continue to exist in a sustainable economy of the future; in fact, they may even be critical in achieving sustainability goals.
That transformation requires capital, accountability and collaboration. Institutional investors can play a unique role in driving this shift by taking a more thoughtful, long-term approach, recognising that integrating sustainability is about positioning for durable growth and stronger competitive positions.
Ana Dhoraisingam is head of institutional and wholesale distribution, Asia Pacific ex-Japan, at Nordea Asset Management Singapore
