HSBC: Climate stocks retreat in second half; bioenergy and technology favored for the fourth quarter

Why does HSBC remain positive on the medium-term outlook after the pullback in climate stocks?

As of 23 October 2026, HSBC’s transition tracking portfolio had fallen about 7% since the start of the second half, but was still up about 15% year to date, around 5 percentage points ahead of the FTSE Global Index. The portfolio is weighted by market capitalization and includes companies that derive at least 10% of revenue from climate-related businesses.
HSBC attributes the recent weakness primarily to geopolitical risks and rising interest rates: higher discount rates typically weigh on stocks that are more sensitive to long-term growth. Over the past month, waste management, integrated power utilities and water utilities outperformed, while themes such as wind power and energy storage lagged, indicating a shift toward areas with more visible cash flows.
After the pullback, the portfolio’s forward price-to-earnings ratio is close to its long-term average, while the market consensus expects earnings per share to grow by about 16.5% over the next 12 months. HSBC believes that, if the broader market environment remains stable, more moderate valuations and earnings growth can help cushion declines.

HSBC’s thematic radar combines long-term investor sentiment with short-term share price and earnings trends. Bioenergy ranks first thanks to strong short-term earnings and price momentum; relative to the tracking portfolio, its consensus expected earnings-per-share growth over the next 12 months has improved from 48 percentage points lower at the start of the year to around 8 percentage points higher now.
High energy prices provide cyclical support for the theme, while policy supports medium-term demand. The EU requires the share of sustainable aviation fuel to rise from 2% in 2025 to 6% in 2030; its actual share of supply had already reached 2.8% in 2025. Europe’s installed biomethane production capacity grew 17% year on year as of the end of the second quarter of 2026.
This investment case is sensitive to energy prices and policy. HSBC notes that if tensions in the Middle East ease faster than expected and the energy risk premium falls, the bioenergy theme’s relative performance could come under pressure.

HSBC identifies technology as another key theme: investment in AI and digital infrastructure is increasing electricity demand and driving demand for grid digitization, energy management software, efficient semiconductors and industrial automation. The bank favors technology segments that can reduce energy or resource consumption.
The market consensus expects earnings per share for the technology theme to grow about 50% over the next 12 months, the highest among themes in the tracking portfolio. But HSBC’s radar also shows that investors are already relatively optimistic about the theme; a slowdown in AI capital expenditure, slower-than-expected grid construction or earnings below expectations could all weigh on relative performance.

HSBC lists transport efficiency and forestry as less attractive themes. Expected relative earnings-per-share growth for transport efficiency over the next 12 months has fallen over the past six months from 4 percentage points above transition stocks to 7 percentage points below them; although electric vehicle penetration is increasing, traditional automakers still face margin dilution and competitive pressure.
Flows into sustainable funds have improved: in the first four months of the second half, net inflows into sustainable equity funds were already about 34% higher than the total for the first half, while bond funds maintained relatively stable inflows. However, sustainable equity funds’ assets under management have edged down in recent months, which HSBC believes mainly reflects market volatility.