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Energy & nature investor quarterly
7/14/2026
Quarterly highlight: System level hedging
Michael Lewis
Head of Research, ESG
Steffen Kutscher
Head of Stewardship – Standards & Processes
IN A NUTSHELL
- Summary: Electrification is emerging as a system-level hedge against fossil fuel volatility which structurally reduces exposure to price and supply shocks. However, this comes at the cost of greater reliance on electricity infrastructure and critical mineral supply chains.
- The Big Picture: Geopolitical tensions are accelerating the repricing of the energy transition by emphasizing the importance of energy security. Early signs suggest supply disruptions are already steering consumers towards electrification solutions.
- Policy: Structural policies are also being introduced. These aim to reduce fossil energy use and accelerate the pace of electrification. This is true in Europe but also in Asia where over 80% of the region’s crude and condensate imports transit through the Strait of Hormuz.
- Technology & innovation: Falling costs curves in recent years across solar, batteries and power electronics are helping to drive electrification. Investors should consider how progress varies across the value chain and between mature, inflecting and emerging technologies.
Introduction
In this issue of the Energy & Nature Investor Quarterly we focus on electrification through three lenses – geopolitics, policy and technology. Electrification has gained increasing attention recently highlighted by the “35% by 2035” target set by COP31 President at the Bonn Climate Change Conference in June 2026. This calls for electricity’s share of final energy demand to rise from just over 20% today to 35% by 2035. This is now being advanced by the European Commission’s Electrify Now coalition,[1] although this has so far not been signed by the U.S., China, Japan and India.
From a geopolitical standpoint, electrification is increasingly viewed as a system-level hedge by reducing exposure to fossil fuel price and supply shocks. This re-pricing is being met by policy action particularly across Asia and Europe, who are the two major economic blocs most exposed to imported fossil fuels: Europe carrying the highest region-wide dependency ratio, and Asia carrying the largest absolute exposure as well as the most acute country exposures in terms of Japan and Korea.[2]
When it comes to technology, the cost curves in areas underpinning electrification such as solar, wind and batteries have been falling for over a decade and this deflation has made electrification increasingly competitive. However, attention has now turned not just to policy steps to unblock the bottlenecks that stand between falling costs and actual deployment by addressing issues such as permitting, grid connection, and transmission build out, but also to develop and scale the technologies that are required to electrify high-temperature industrial processes, which has been more challenging to date.