Capex and ESG
The desk argues that strategic increases in capital expenditure (capex) driven by Environmental, Social, and Governance (ESG) commitments could reverse the recent trend of under-investment in major corporations. Per the full note from Nordea, companies have invested significantly less since 2016, which correlates with global commitments under the Paris Agreement to tackle climate change. The expectation is that ESG will unlock new investment opportunities and drive capital flows back into growth sectors. This aligns with our outlook on a recovery in spending, particularly in the infrastructure sector as seen in European infrastructure initiatives set to ramp up in 2026.
What the desk is arguing
The desk posits that the rise of ESG considerations in corporate strategy could serve as a critical pivot point for businesses to boost capital expenditures, reversing a downward trend in investment observed since 2016. According to Nordea's analysis, the urgency of climate change and commitments made under international accords like the Paris Agreement are priming firms to reallocate resources into sustainable initiatives. This shift could ultimately reshape investment landscapes aligned with ESG principles.
Evidence suggests a significant redirecting in investor sentiment, with European infrastructure programs indicating a resurgence of interest and funding. This is especially notable as future public infrastructure initiatives are expected to create a substantial boost in investment—contrasting the capital drain observed in U.S. cleantech sectors. For example, there's an anticipated step-up in investment in European cleantech by 2026, indicating a potential recovery in capex growth.
Where it sits in our coverage
Given our current consensus target of 1.075 for EUR/USD, this view aligns closely with the underlying trend we see emerging from increased ESG-focused investments.
How other firms see it
JPMorgan maintains a bullish stance with a target of 1.10, while BofA takes a more cautious approach, setting a target of 1.04. The diverging outlooks reflect differing views on how quickly the impact of ESG directives will manifest in capital flows and market dynamics.
What the calendar says
With no scheduled high-impact events for the next 30 days, we do not anticipate any immediate catalysts that could disrupt this ongoing narrative, allowing for a more steady observation of shifts in investor sentiment regarding ESG-related investments.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Capex has declined significantly since 2016, linked to ESG commitments.
- 02European infrastructure investment is set for a major increase by 2026.
- 03The push for ESG could catalyze a corporate spending revival.
- 04Divergence exists among firms regarding the pace of capex recovery.
Market implications
Traders should monitor how ESG investment trends impact corporate earnings and capital flows, particularly any change in investor sentiment indicated by shifts in infrastructure spending levels. A move above 1.075 could signal a recovery trend solidifying along with such initiatives.
Risks to this view
A reversal could be prompted by disappointing corporate profit reports or regulatory setbacks related to ESG plans that diminish investor confidence and hinder capex recovery. Additionally, a shift in monetary policy could also alter risk appetites.
Podcast Capex and ESG 03-02-2022 Large companies have since 2016 invested far less than they used to do historically. In this podcast, Johan Trocmé and Viktor Sonebäck from Nordea Thematics talk about how the world’s nations have committed under the Paris agreement to investing in limiting global warming to save the planet. ESG could become the catalyst that ends under-investment.
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