AI, Natural Gas, Rare Earths: 2026's Sustainability Shifts

Mark: Each year, Allspring Global Investments produces a sustainability outlook. To discuss the 2025 predictions and how they played out, and for a look ahead to 2026, I'm joined here by two authors of the report. They are Henrietta Pacquement, Fixed Income COO and head of Sustainability, and Kofi Mbuk, climate and environmental research lead for Sustainability. Henrietta, let's start with you. Looking back at the themes you selected in 2025, what were they? How did they play out?

Henrietta: So, every year we look for themes that are going to be relevant to investors, and 2025 was no different there. We had three themes: The first was nuclear, the second was extreme events, and our final one was water. And, I think they really came out quite strongly over the course of the year. If you look at nuclear, we saw a lot of issuance in the bond market. It pretty much doubled from the issuance in 2024, as we had a bit of a race for power—more on that in a minute. The second theme that we had was extreme events. Very sadly, we’ve continued to see those linked to climate change, and that is increasingly costly from an economic perspective. So, we saw that one play out as well. The final one was water. Surface water, in particular—we called it liquid gold. We are seeing companies across the economy increasingly thinking about how they are dealing with the water question. So, they turned out to be very topical last year.

Mark: And, Kofi, turning to 2026, what themes did you select? How tough was it to do so?

Kofi: Well, we selected three themes for investors to watch out for this year. They are: data-centered AI infrastructure escalates; natural gas makes a comeback; and, you know, the race for rare earth materials. The criteria was actually rather straightforward, Mark. These three themes, they sit at very, very large, persistent capital needs. And, we basically foresee incremental increase, if I may add, in bond issuance across various sectors and multi sectors. This brings the opportunity back home, right here at Allspring, across equities and fixed income, that our clients can directly buy into. The final criteria was sustainability and decarbonization. They are not one fixed issue, OK? They are interconnected with a lot of other issues out there—issues like energy, security, and resource availability—and these were the criteria that we selected for our teams this year.

Mark: Given this real focus on the AI boom—I mean, the report goes into the capital expenditure and the power needs and so forth—what should the sustainability investors be looking at in light of all of this?

Kofi: Well, yes, I mean the AI boom and data center, they are one of the fastest-growing themes out this year, hence why we selected them. But what we see—this electricity, electricity volume—they are actually picking up. We projected an annualized growth rate of 17% over the next five years, basically a boost in global electricity volume. In terms of investment, this sector would basically see a peak of investment of $1.3 trillion by the end of 2030, of which $760 billion in capital flow will be seen at the end of this year. But this also comes with a set of unique risk, Mark. Those include pressures on fresh water supply needed to maintain these data centers, cool these data centers. We also have grid bottleneck and power curtailment issues. But this brings us back to the opportunities, and what we are basically looking at is an increase in bond issuance across power sector, utilities, and power of an infrastructure space.

Mark: You mentioned the return of natural gas or natural gas making a comeback—so, Henrietta, how does that affect net-zero ambitions?

Henrietta: Well, it is a challenge. So, we knew we were going to get a power surge as we progress with electrification. That's part of the transition. But obviously the AI boom has turbocharged that and power needs have really increased over the past few months. So, as a result of that, we have had a renewed interest in terms of gas. Gas prices have come down, thankfully—there was a peak in 2022. So, that has also helped the story there. It is highly relevant to investors because obviously it is a fossil fuel. Obviously, it is a greenhouse gas in itself as well. But, we've seen it as a transition fuel. If you look at the EU (European Union) taxonomy, it is seen as a transition fuel. But what is going to be very important for investors is how it gets done. So, we need to be able to generate the power that we need for the progress we're looking at, but it needs to be done in the right conditions, and I think that is going to be very important for sustainability investors to engage with their utilities, with their prior providers, to see how it gets done over the year.

Mark: But, do you have a sense, Henrietta, on how long somebody can be using a transition fuel like natural gas? Say they've got a data center that uses a lot of power before—I mean, if they use it for two years and then move completely to renewables, I get that. But if they use it for 15 years and keep on using it, at some point you think, “I'm being played here.” So, how do you think about the time scales?

Henrietta: It’s going to evolve, right? The sort of path of the energy mix is going to be something that is very important to follow. But just to sort of give an idea of scale, if you go back to 2023, the power needs for the AI or for the technology side was about 2%, just shy of 2%, of the need from an electricity perspective. Fast forward to 2030, and the expectation now is for that to be in the 7–8% range in a bigger-need environment from a power perspective. So, that's what we're seeing. Obviously we're making progress from a renewables perspective—be it in terms of wind, be it in terms of solar—and, actually, a lot of the growth was held by these renewable sources last year, which was great to see. So, at the moment, we're seeing a bit of a plug in the gas side. Why? Because of the speed to market of that side. We talked about nuclear last year. That's going to be a longer-term one. It is a question of assessing it year by year.

Mark: And, Kofi, the third theme of rare earth metals. I mean, we are in a period with a lot of geopolitical turbulence—competition between the U.S. and China. So, where does this rare earth theme sit in the middle of that?

Kofi: Oh, yeah. I mean, turbulence indeed. I mean, we've seen what we call scrambling and fighting to actually secure resources among various tier one countries. And what this just underscores is the importance of security of not just supply chain, but also security of these minerals. As we all know, you did mention China. China dominates this space. They dominate the rare earth space. And, basically, what we are foreseeing is an increase in geopolitical risk because they use that as a power play. Now, the international community, the global economy, they are aware of this threat. They are aware of this possible potential risk, of which they have come together to put in place a $2 trillion package to invest in this sector, to invest in the rare earth sector and mining sector, a sector that has been well underrepresented. But this investment is not expected to actually materialize until 2050. So, there is going to be a delay, which obviously is going to give a lot of power play to sovereigns like China.

Henrietta: Yes, and actually to add to that, at the start of 2026, we had the finance ministers of the G7 meet with Mexico, meet with South Korea, and meet with India on this very topic. And it was really interesting to see how they are looking to turbocharge this diversification of the sourcing of rare earths.

Mark: So, when you're looking at lending money in this space, does this suggest from what you said earlier, Kofi, that there's a really big political, or much bigger political, risk than the markets have so far priced in, in anybody making semiconductors or anything connected with that part of the industry that needs rare earth metals?

Kofi: Yes, there is definitely a bigger risk in this, for instance, seen more in the downstream sector—players like Nvidia and Microsoft of the big hyperscalers. And, actually, this is very important because what we are going to focus on this year is basically price constraints—what implications these geopolitical risks have actually put into the price of semiconductors and other AI components needed and required to actually boost a sector.

Mark: And final quick question: You are talking about China's dominance in rare earth minerals, metals—is that in refining, in the mining of them, or both?

Kofi: Well, Mark, both. I mean, China, they control over 70% of both mining and refining of rare earth metals. And as I mentioned before, this is a major challenge and threat to the global economy. That's why they come in together, as my colleague Henrietta mentioned, to put a fiscal package together to basically alleviate this threat.

Mark: Finally, Henrietta, we talk across these three themes but in the realm, what does it mean for client portfolios? What should they be thinking about in terms of the investment implications from these ideas?

Henrietta: Well, I think 2025 kept us on our toes from an investment perspective. We're expecting the same over the course of this year in 2026. And I think this is going to throw up a lot of opportunities. We talked about issuance in the AI infrastructure space and the energy to power that infrastructure. I think we're expecting a lot of issuance there, and that, as fixed income investors, is going to be something to look at. And be also a little cautious about the relative value, because this is going to change the balance sheets of the companies that are investing in that space. So, a lot of opportunity there. We talked about pressure points. Kofi talked about the grid. He talked about rare earths. That has the potential to create pricing spikes over the course of the year, depending on how these potential bottlenecks evolve. I think that is something to think about from an investment perspective—and to really sort of think about it as an ecosystem, not as sort of individual companies there. Building on the AI theme, one thing that's going to be really interesting to sort of start seeing this year is, and I'm going to steal the theme from one of our equity teams here, they are looking at AI through this lens for AI users. Last year was all about experimentation and trying things out in the AI space. We are going to move toward more implementation, and we need to see more implementation. So, I think that's going to be a really interesting theme for investors as well and might start changing the sort of competitive dynamics in the industry and industries generally across the economy—definitely something to watch.

Mark: We are out of time; we have to leave it there. Henrietta Pacquement, Kofi Mbuk, thank you very much. And thank you for watching. Do have a look below the player—we’ve got a link to the Sustainability Outlook 2026: What's on Our Radar? There's also a link to other materials on climate transition investing resources. From all of us here, goodbye for now.