A common misconception amongst generalist investors is that exposure to the energy transition will come from holding a small number of the world's largest companies. ESG funds, for example, are often dominated by AI mega-caps – companies that have spent the past few years presenting themselves as ‘climate champions’ on the back of renewable power purchase agreements. Clean energy baskets, meanwhile, are typically concentrated in a handful of the same pure-play developers and equipment makers that have delivered some of the worst equity returns of the last three years.
The companies driving change in the real economy look very different. Those building, supplying and recycling the physical infrastructure of decarbonisation are far further down the market-cap spectrum and – for the most part – outside of the index baskets that dominate global portfolios. They sit in pools of the global equity market where we have spent the last decade fishing and currently trade at some of the steepest discounts we have seen in our careers.
Small but powerful
FTSE Russell, which screens 99% of global listed market capitalisation against a green-revenue taxonomy, estimates the green economy at just under USD 8 trillion, having grown at 15% per annum for the last decade[1]. Its analysis has also historically shown that while large-caps account for the bulk of green market capitalisation in absolute terms, small and mid-caps have higher green revenue exposure[2].
The investment process in SKAGEN Focus is based on value-based fundamental bottom-up research and we continuously find undervalued and ignored investment cases confirming the above. While a severe undervaluation of an asset always is the primary requirement for an investment the potential catalysts for re-rating of an equity could partly be transition based.
The companies that make the silicon wafers, recycle the steel and zinc, build the energy-efficient envelopes of buildings, and convert waste into power are typically capitalised between $1 billion and $10 billion and domiciled outside the US. This means they tend to be under-researched – sell-side coverage of small and mid-caps has thinned dramatically over the last decade – and are routinely lumped in with their fossil-heavy or cyclical sectors by passive flows. That is a recipe for the sort of mispricing that SKAGEN Focus is drawn to.
There are several examples in our current portfolio – about a fifth of which is providing direct inputs to the energy transition. The following holdings all entered the fund because the equity was mispriced and trading at a steep discount to our estimate of normalised earnings power. None were bought as a "green stock” but all provide a vital contribution to the energy transition – a free option.
- Wacker Chemie (1.8% of NAV) is one of the world's leading producers of polysilicon, the upstream raw material for both solar panels and semiconductors. The German multinational is also misunderstood. Where the market sees a cyclical chemicals company caught in a Chinese polysilicon glut – and prices it accordingly – we see a hugely undervalued business with the balance sheet to weather the cycle and an increasingly important US and European footprint. The company also owns a sizable stake in German wafer maker Siltronic, which is ignored from a valuation / asset backed perspective.
- Befesa (2.1% of NAV) is a pure circular-economy business that recycles steel-mill dust and secondary aluminium, recovering zinc and aluminium oxides back into the supply chain. Every tonne of metal recycled by the Spanish company displaces primary metal that would otherwise be smelted from ore, with a fraction of the embodied energy and carbon. Its shares have been hit by weak European steel volumes and concerns about its Chinese expansion, but the structural investment case remains compelling – recycled metals will take share from primary metals as embedded-carbon disclosure becomes mandatory across European industry.
- Takuma (1.4% of NAV) builds and services waste-to-energy plants in Japan, where municipalities are legally required to incinerate non-recyclable waste and increasingly to recover the heat as electricity. It is a deeply unfashionable Japanese mid-cap (the sort of company global investors routinely overlook) with an order book underpinned by long-duration municipal contracts and the country’s push toward energy security – and a valuation that reflects neither.
- Wienerberger (2.4% of NAV) is the world's largest brick maker, but it also manufactures pipes and energy-efficient building envelope systems that will supply Europe's renovation wave – the slow but enormous policy-driven retrofit of the continent's existing housing stock. While the market has chosen to focus on weak new-build volumes and the Austrian company trades close to book value, earnings power is structurally improving.
- Methanex – one of our largest holdings at 4.0% of NAV – is well-positioned to benefit from shifts in demand under maritime decarbonisation rules. The Canadian company is the world's largest producer of Methanol, one of the leading low-carbon alternatives to heavy fuel oil for the shipping industry.
Avoiding data centre damage
In comparison, the growth of the AI mega-caps that dominate ESG funds and the global index is increasingly underwritten by data centre build-out. The IEA forecasts that global data centre electricity demand will roughly double from 2024 to 2030, driven largely by AI (see figure 1). The associated water usage – data centres rely heavily on evaporative cooling – is on track to exceed 5 billion cubic metres annually by 2027 according to research cited by the European Commission – roughly four times Denmark's total annual water consumption.
While there are good arguments for owning mega-cap technology companies, green exposure is not one of them – their high earnings growth comes with an expanding and increasingly costly environmental footprint in our view.
The contrast is even starker in valuation terms. The MAG 7 trade at an average price-to-book of around 18x compared to 1.6x for the five SKAGEN Focus holdings outlined above – in other words these five companies that are driving real change in the real economy cost roughly a tenth of the multiple the market is paying for the AI-era “climate champions”. Three of them – Methanex, Wacker Chemie and Takuma – are among the fund’s top ten positive contributors that have helped SKAGEN Focus outperform the tech-heavy MSCI All Country World Index year-to-date[3].
For investors trying to build genuine, deliverable exposure to the climate transition, we believe the small and mid-cap segment is the most under-appreciated lane on the road. The companies doing the unglamorous physical work of decarbonisation are abundant for those who know where to look and investable without paying anything close to mega-cap multiples.
[1] Source: FTSE Russell (LSEG), Investing in the Green Economy, 2025
[2] Source: LSEG: Investing in the global green economy: busting common myths, 2018
[3] As at 31/03/2026. Net of fees.