Tragic Conflicts and Climate Impacts Strengthen the Case for the Energy Transition

Generation Investment Management’s 10th annual, 2026 Sustainability Trends Report examines how recent energy shocks linked to conflicts in the Middle East and Europe have highlighted the economic, security and humanitarian risks of continued dependence on fossil fuels. The report also examines extreme weather events and their visible costs, while assessing progress and priorities across the Power, Transportation, Buildings & Industry, People, Land & Food, and Financing the Transition sectors.

Generation Investment Management Chairman Al Gore said the world is experiencing its second fossil energy crisis in four years, with high oil and gas prices increasing costs for consumers and rewarding producers with higher profits. He said recent events are increasing recognition that energy security, economic stability and climate action are closely connected.

Fossil Fuel Dependence Becomes a Strategic Liability

The report says the energy shock following Russia’s invasion of Ukraine was not an isolated event. Four years later, disruption around the Strait of Hormuz exposed similar vulnerabilities, affecting a major share of global seaborne oil, fertilizer and liquefied natural gas trade.

The effects extended beyond energy markets. Shortages of materials such as helium disrupted semiconductor production and increased costs for healthcare providers that rely on MRI technology. Fertilizer concerns also increased risks for global food production. The concentration of commodity flows through vulnerable maritime chokepoints further increases the potential for disruptions to spread through the global economy.

The report argues that fossil fuel dependence is increasingly an issue of energy security, food security, national resilience and the cost of living, in addition to being an environmental concern.

Energy Security and Climate Action

Generation says energy security and climate action increasingly require the same solutions. Reducing dependence on fossil fuels can limit the impact of future energy shocks. Renewable technologies can convert upfront investment into decades of energy production, reducing exposure to external disruptions and fuel-price volatility.

The transition is already visible across multiple markets. Electric-car sales in Europe increased 30% in 2025. Chinese solar technology exports to Africa rose 120% in the first quarter of 2026 compared with the same period a year earlier. Heat-pump sales across 11 European countries increased about 17%, while induction cooktop sales in India increased tenfold.

China and the Energy Transition

China occupies a central position in both the fossil fuel economy and the clean-energy transition. It remains the world’s largest fossil fuel consumer and largest greenhouse gas emitter while also being the leading producer of solar panels, wind turbines, EVs and large-scale batteries. Chinese investment has contributed to major reductions in solar panel costs over the past two decades.

The report raises the question of whether relying heavily on Chinese clean-energy equipment could create a new form of dependency. It also notes a key difference between fossil fuels and technologies such as solar panels: fossil fuels require continuous imports, while installed clean-energy technologies can produce electricity for decades.

Generation also points to expanding clean-energy manufacturing capacity in Europe, North America and India. Europe remains a leader in offshore wind, while Ember estimates that appropriate policies could enable Europe to meet domestic demand for wind turbines, EVs and heat pumps through its own manufacturing base.

Power

The report identifies the electric grid as a major bottleneck for the energy transition. Clean electricity generation grew enough in 2025 to meet all global electricity demand growth and additional demand. Solar output increased 30%, while global battery-storage capacity additions increased at least 40%. The report says grid infrastructure is now struggling to keep pace with the technologies requiring connection.

Transportation

The report says the transition away from gasoline-powered transportation has reached a significant milestone. One in four new cars sold worldwide in 2025 had a plug, while sales of gasoline-only cars peaked in 2017. Despite political opposition to EVs in some markets, many countries continue working toward phasing out gasoline-powered vehicles. The report says superior EV economics and performance are also advancing adoption in developed and emerging markets.

Buildings and Industry

Heat pumps are expanding beyond residential and commercial applications into industrial uses. Projects in Finland, Germany and the United States are using heat pumps to produce industrial steam and heat, creating a potential pathway for replacing fossil-fuel boilers in factories. The report identifies public policy as an important missing component in decarbonizing industry.

People, Land and Food

Food production remains closely tied to fossil-fuel supply chains and weather conditions. Synthetic nitrogen fertilizers support food production for almost one in every two people worldwide. The Strait of Hormuz crisis has contributed to higher prices and shortages of nitrogen fertilizer, while also creating an opportunity for alternatives with lower environmental impacts.

Financing the Transition

Investment in clean energy is accelerating. Global clean-energy investment reached a record $2.2 trillion in 2025, approximately twice the amount invested in fossil fuels. However, the report cites International Energy Agency estimates that annual clean-energy investment needs to reach $4.5 trillion by the early 2030s to meet the global goal of limiting warming to 1.5°C.

Growing Public Anger Boosting the Sustainable Transition

The report says increasing temperatures are contributing to more intense heatwaves, heavy rainfall and continued sea-level rise. It also highlights economic inequality and growing public anger as factors shaping the broader sustainability transition.

Artificial intelligence could also influence the transition. Generation says AI could improve efficiency, reduce waste and help address longstanding challenges, while noting that AI is already being used in fossil fuel extraction and is creating rapidly growing demands on an electric grid that is not yet prepared for them.

Generation Investment Management is an independent, private, owner-managed partnership headquartered in London with a U.S. presence in San Francisco. Founded in 2004, the firm focuses on sustainable investing and seeks long-term investment returns alongside positive environmental and social impact.