Finding investments where disruption meets transformation

The past can hold relevant lessons. 

In the automotive industry, catalytic converters reduced auto emissions and fostered the research and development that laid the groundwork for other profitable clean technologies. Seatbelt mandates improved passenger safety, and also highlighted a significant market opportunity in auto safety features that would come to include airbags, anti-lock braking and driver-assistance systems. 

Consider antibiotics and vaccines: These innovations drastically reduced deaths and spurred the investments that developed into the modern pharmaceutical industry.

We see analogous conditions today as disruptive pressures in the market—extreme weather, AI adoption and policy shifts—spur innovation and reveal potentially beneficial opportunities with positive environmental and social outcomes. Even changes in regulation (or deregulation) can point to interesting areas of investment.

The case for being a sustainable capitalist

It’s a popular, but mistaken, notion that investors must accept a trade-off between investment performance and environmental or social benefits—or, to put this myth another way, that an environmentalist’s dream equals a capitalist’s nightmare. We disagree. 

We see a clear and rational financial case for incorporating sustainability considerations into investment analysis, decision-making and portfolio construction. There is no one-size-fits-all approach; however, the key to good analysis is to tailor it to specific contexts. When we do, we see a longstanding link between sustainable considerations and value creation opportunities across asset classes.

Here’s a look at where we see opportunities in the market today, which may strengthen portfolios while contributing to positive environmental and social outcomes.

Disruptive extreme weather and natural disasters

In 2023, the United States experienced a weather disaster causing a billion dollars in damage, on average, once every one to two weeks. The frequency was once every 15 weeks in the 1980s.¹ Spain endured devasting flooding from record rainfall in 2024, with insurance compensation set to break records—reaching at least $3.8 billion.² And today, as we prepare to publish, devastating wildfires raging in and around Los Angeles serve as a further reminder of the need for innovative climate-related adaptations to avoid disasters’ tragic human costs.

The challenges arising from extreme weather’s rising frequency and intensity are far-reaching, and investors can play a role:

• Weather-proofing homes: Climate-related costs are worsening the home affordability crisis in the United States. Weather-related damages—and the rising cost of flood and fire insurance—are becoming growing concerns and key considerations for prospective homebuyers.
  
  We note that the online real estate site Zillow recently added climate risk data to its for-sale listings.³ Some 73% of U.S. homeowners surveyed said they would pay more for weather-proofed homes.⁴ Residential climate adaptation solutions are important to preserve and sustain life and property, and companies providing those solutions will need additional investment capital to succeed.

• Making infrastructure more resilient: Power sector investments are likely set to rise because there’s a global need for more power supply, for growing manufacturing, electrification (enabling clean energy solutions) and for power-hungry data centers. End-users also need new grid infrastructure to connect them to greater capacity—requiring further fresh investment, since many power grids are old, strained in places, and have suffered outages due to climate risks such as wildfires. 
  
  Actions by companies such as Pacific Gas and Electric (PG&E), which said it is investing over $2.5 billion and undergrounding 2,000 miles of electric lines by 2026, illustrate the opportunities in both expanding and hardening grid infrastructure.⁵ Resiliency investments are paramount for utilities to support growing energy demand and adapt to climate risks. 

Disruption by widespread AI adoption

Artificial intelligence (AI) brings the promise of efficiency, yet also comes with certain environmental and social impacts related to its energy and water use and potential for labor force disruption. As markets grapple with the rapid integration of AI across sectors,⁶ we see a complex landscape of risks and opportunities, including:

• Water infrastructure and energy efficiency solutions: These arise in parallel with AI’s growing energy and water use intensity. One ChatGPT query requires about 10 times the electricity of a traditional Google search.⁷ The data centers powering AI models are thirsty, too. Globally, data centers are expected to grow their water usage by 6% annually for cooling.⁸ As companies address these concerns with efficiency and recycling solutions—vital technologies for sustaining the growth in AI—investable opportunities can open. For instance, data center cooling is poised to grow 18% annually, which forecasts say could make it a $16.8 billion market by 2028.⁹
  
  
• Transformative disruption in the healthcare sector: Using AI technologies, healthcare companies can reduce hefty labor costs, and pharmaceuticals may expedite getting drugs from clinical trials to market, and improve drug design—creating some promising areas for investment. Moreover, healthcare has the highest costs of all sectors from data breaches.¹⁰ While AI amplifies this threat by enabling cyber criminals to execute more sophisticated attacks, one study found that AI—when used defensively—has also helped firms reduce the cost of breaches by 33%.¹¹ We see a range of opportunities in healthcare because AI can enable so many significant cost efficiencies.

Opportunities in shifting policy and regulation

Alongside market forces, we see places where policy—especially related to geopolitics and security—and market regulation are supporting the adoption of sustainable solutions. These are other avenues opening investing opportunities.

Geopolitics and security are important to governments. Security investing today is not limited to the traditional military and defense sectors but also includes bolstering the supply of critical natural resources; producing sufficient energy domestically (supporting the growth in electrification and renewable energy); securing access to semiconductors and hardening national infrastructure.¹²

They are all pivotal for national security and to compete in the global economy. Some opportunities we see for investors include:

• Where policy incentives are accelerating the energy transition: The United States, European Union and China are strategically subsidizing the energy transition and efficiency solutions, and their policy shifts have spurred private investment. The European Green Deal pledges 1 trillion euros through 2030 to promote energy security and develop key transition technologies.¹³ In the two years since the Inflation Reduction Act was signed into U.S. law, companies have announced over 350 clean energy and vehicle projects totaling over $130 billion in committed capital.¹⁴ These projects can hold attractive opportunities.
  
  
• Cases where corporate governance is attracting investment: Separately, another policy shift opening opportunities was a 2023 move by the Tokyo Stock Exchange: putting corporate governance reforms into effect on listed companies, encouraging greater disclosure and shareholder engagement—actions expected to boost foreign investment. These shareholder-friendly actions build on strides Japanese corporations have made in recent years to improve transparency, risk management, and capital efficiency.
  
  We are seeing this pay off. Corporate buyback announcements in Japan to date have been double the previous annual record¹⁵ —a trend that has the potential to benefit investors in the region.
   

Your JPMorgan team is here to help

As markets worldwide grapple with and adapt to disruption—from climate, tech advances, policy and regulation—we believe companies with resilient, innovative business models should become more competitive. Understanding environmental and social considerations can be key to value creation. Your JPMorgan team can help make these considerations part of your investment mosaic, to mitigate risk and help you identify, and potentially capitalize on, trends.