That’s why the COP29 conference in Azerbaijan adopted the ambitious global target of 4%/pa annual energy intensity improvement by 2030. This would help to meet the IEA's Sustainable Development Scenario in which energy efficiency meets over 40% of the targeted 2040 emissions abatement. Achieving such a scenario would have enormous positive impacts:

1. Avoid energy demand equivalent to total US primary energy today (95 EJ)

2. Reduce energy bills in advanced economies by one third

3. Create up to 4.5m extra jobs

4. Save >7 GT of annual CO₂ (nearly 20% of today's energy-related emissions)

5. Be on track to halve pollution by 2050

It’s debatable whether such targets in themselves help to inspire more investment in energy efficiency. More like it is real economic incentives, supported by stronger policies and international standards, that will move the dial.

For now, however, the reality is that energy efficiency progress has actually been decelerating lately. Average annual energy intensity improvement of 2.2%/pa over 2010-15 fell to 1.6%/pa over 2015-19 and has since fallen as low as 1%/pa over 2023-24, according to preliminary data. The 4%/pa target was supposed to be a doubling of the existing rate of progress, but would now be a quadrupling. So, while we’re seeing very encouraging signs of rapid acceleration in clean generation and storage adoption, when it comes to efficiency we seem to be heading further off track. 

This efficiency slowdown reflects higher recent growth in energy demand, especially since 2022, at a time of weaker economic growth. Arguably, insufficient investment has not helped either. Annual EE spending has risen from $302bn to $429bn over the last decade, according to IEA estimates. That implies average nominal growth of ~3.5%, but in real terms this is perhaps fairly flat. Either way, it clearly hasn’t kept pace with the 2%/pa rate, let alone 4%/pa. Higher inflation and interest rates are no doubt factors here, since efficiency improvements typically have up-front costs and long-term benefits.

There may be an investment gap, but the good news is that there isn’t really a technology gap. There is no need to wait for game-changing breakthroughs beloved of the popular imagination, like nuclear fusion. The required efficiency solutions largely already exist and are continually improving. From that perspective, the real efficiency gains are yet to come.

Energy efficiency in practice

So much for the theory. What does EE look like in reality? How do we really get the “EDGE”: efficient and decentralised generation of energy?

Given inefficient fossil fuel energy conversions, historically there are two levels to efficiency gains. First, incremental improvements in existing processes: think more miles per gallon in an international combustion engine (ICE) vehicle. Second, replacing existing equipment and infrastructure entirely with more efficient versions: think swapping out an ICE vehicle for an electric vehicle (EV), jumping from 20-30% to 70-80% conversion efficiency in one go.  

Electrification, meeting final energy use with electric means, is in itself a powerful efficiency vector. And with the global economy still barely 20% electrified, the real revolution is yet to come. A neat way to conceptualise it is simply in terms of heat and work. The energy services required by human societies have been evolving from mainly heat (keeping warm, cooking food etc) towards mainly work (transport, lighting, running IT systems, etc). When heat was the main required output, it naturally made sense as the input. But when work is the main required output, heat is a much less efficient input, given high conversion losses. Unsurprisingly, work then represents the best input, involving fewer wasteful conversions. The more electrified an energy system becomes, the smaller the gap between primary inputs and end use.

But energy efficiency is about much more than simply electrification. It encompasses a much wider spectrum of digitalisation, decentralisation and on-site generation, district energy solutions, demand management, industrial gas and waste heat recovery and reuse, co-generation, cleaner cooking, improved appliances, retrofitted equipment, advanced controls, F-gas free refrigerants, improved design, insulation, the list goes on...

This list breaks down into a few key categories:

1. Many industrial processes can be reconfigured to better recycle and reuse energy that would otherwise be lost.

2. Other forms of energy consumption benefit from reducing the distance and complexity between supply and demand, thereby wasting less energy and reducing the costs of grid reliance.

3. Then there are the incremental gains from replacement and upgrading older equipment and infrastructure with newer, better models. When applied comprehensively across core sectors like transport, building heating and cooling, manufacturing and industry, these incremental gains can accumulate into transformational change. However, this can be a slow and costly process often with higher costs for early adopters. 

4. Finally, of course, advanced machine learning and AI are not yet helping to reduce energy demand, but they do have the potential to be very powerful efficiency vectors. AI chips themselves have already come a very long way, doubling in energy efficiency every 2.5-3 years, meaning the latest ones use 99% less power to perform the same calculations as a 2008 vintage. Let that eye-opening statistic sink in before we succumb to dire warnings about AI’s future energy consumption. And we are still almost certainly in the early stages of making large language models and other AI agents orders of magnitude more efficient, as Deepseek’s appearance hinted at earlier this year. But the real energy efficiency gamechanger promised by increasingly autonomous tech like AI and robots is not so much from reducing their own energy consumption as from their positive feedback loops, multiplier effects and productivity gains across the broader economy. It’s impossible to model such effects meaningfully, but suffice to say here that their adoption will be non-linear and their impacts highly disruptive (a theme we will no doubt return to in future).

So how can we invest in Energy Efficiency?  

So far, so good: we understand the importance of energy efficiency in system transformation. But as investors, how can we usefully apply this knowledge today? Is there a clear way to play it? The answer is yes. Below we consider two alternative approaches.

One leading pioneer in the energy efficiency investment field is Jonathan Maxwell, founder of Sustainable Development Capital LLP (SDCL), a fund that has focused on exactly that for the past couple of decades. He describes the genesis of this in his book “The Edge” (which we recommend):  

"I started [SDCL] in 2007 to create the company that I wanted to work in and to address the problems for which solutions would be most valuable and helpful. I wanted to use my place in the world, my energy, my evolving understanding of business and finance, and my persuasion, to move money into the environmental infrastructure sector. Beyond the already maturing renewable energy project sectors, I was convinced that there was an opportunity to reduce the amount of energy being used. For me, sustainable development was predicated on resource efficiency."

Many people see the whole concept of net zero economies as at best unrealistic, at worst absurd. But with his distinctive perspective, Maxwell has long since advocated EE’s essential and largely overlooked role in helping to deliver pathways towards them:

"Without fundamental consumption changes that include a push towards maximizing energy efficiency, final energy consumption in 2050 could be 90 per cent above what is required to achieve the net zero pathway. We would otherwise be asking renewables to increase fivefold in scale, from 20 per cent of the global energy system to 100 per cent of the global energy system, then to scale up to four times more energy because of electrification and then up to 50-90 per cent more because of population and the advance of developing societies. Even if this could happen, it will take longer than we have. Instead, we need to reduce energy use, not just add to it... Unless we focus at least as much on reduction and efficiency as we do on addition and capacity, we risk failing in all our efforts to mitigate climate change. We will also have lost productivity gains crucial for prosperity and sustainable growth, as well as the opportunity to improve energy security and resilience." 

Put simply, energy efficiency is not just a climate benefit, it is a huge economic opportunity.

SEEIT (LON: SEIT)

That begs the question whether Maxwell has been able to translate this admirable thought leadership into a reliable portfolio capable of delivering outperformance.

The listed investment trust that he and his team manage, SDCL Efficiency Income Trust (SEEIT, LON: SEIT) describes itself as “unlocking the world’s most valuable energy resource” and is one of very few publicly available investments focused explicitly on energy efficiency. Like its peer group, the main draw is the prospect of sustainable long-term high income. Over recent years, however, it has been pretty unloved, to put it mildly. Or perhaps more charitably, simply overlooked in favour of more obvious clean energy vehicles that have likewise suffered in an environment of higher inflation and interest rates. 

Currently valued at just over £600m, it trades at a steep 38% discount to Net Asset Value (NAV). That is even after a recent (June 2025) share price rebound from a low around 44p, which valued it at less than half its NAV. This took it from an eye-watering dividend yield of over 14% down to closer to a still substantial 11%. The key challenge: that dividend is barely covered by forward earnings, leaving SEEIT very vulnerable to any unforeseen setbacks. 

SEEIT does have a reasonably diversified portfolio of companies/projects in terms of technology, and to a lesser extent geography too, mainly underpinned by long-term revenue structures. Solar & storage represent 27% of NAV, district energy 19%, combined heat and power 22%, gas distribution 7%, biomass 5% and EV charging 5%, with various others making up the remaining 15%. The portfolio is weighted approximately 70% to the US, 20% to Europe and 10% to the UK and a few other countries. Project companies range from a waste heat recovery and co-generation operations in the US to waste recycling and onsite generation at olive oil factories in Spain. 

Like other clean energy infrastructure trusts, SEEIT’s key risks include a lack of financial flexibility, due to fairly high gearing, and thin dividend cover. The value delivery strategy therefore exhibits several parallels with its peers:

• Aiming to delever at fund level in favour of project level debt facilities to finance new investment

• Recycling capital through disposals where possible at or around NAV, allocating proceeds mainly to debt reduction

• Prudent and selective capital allocation

• Building greater market awareness though more active investor and media relations activities

Notably, the June 2025 annual report presentation also highlighted that the board would consider “all strategic options” to realise shareholder value. If this is not quite putting up the “for sale” sign, it’s certainly saying they are open to offers to sell the entire portfolio. That may help to explain the ~20% share price jump over June 2025 after several years of decline. With a double-digit yield and still substantial discount, there may well still be some further short-term recovery. However, much as we would like to see SEEIT become a noted success story, its financial constraints unfortunately limit the prospects for meaningful growth. The recent statement implies a degree of fatigue in trying to achieve a fair valuation, let alone expand further. 

A deeper play on energy efficiency: Schneider Electric

But if we zoom out things get a lot more interesting. There is an altogether different energy efficiency beast that is embedded in the fundamental trends that will shape the future, like digitalisation and AI. Its core principle: “Digitalisation + Electrification = Efficient + Sustainable”.

That company is Schneider Electric (SE, EPA: SU), the 180-year-old global energy management and industrial technology behemoth with a market valuation of ~€125 billion. From building France’s first steam locomotives in its early days, SE has evolved through four waves of European industrial revolution to become a global leader in digitalisation, automation, energy efficiency and sustainability. In fact, for what it’s worth, it was recently redesignated the “world’s most sustainable corporation” by Statista.

SE sees energy efficiency and circularity driving progress off the old path and opening up the opportunity for global electrification to nearly triple to 55% by 2050. This is sustainable energy transformation in action.