Energy shocks reinforce the case for efficiency
A great deal has shifted since our last update. Most notably, renewed conflict in the Middle East has brought geopolitics, and critically energy markets, back to the centre of investor focus.
Markets have responded in a broadly familiar way. Volatility has increased, risk appetite has softened, and capital has rotated selectively towards perceived safety. But this should not be dismissed as a routine “risk off” episode.
We may be at the early stages of a structural repricing. How far it develops will depend on the duration of the current conflict. But it provides a useful window into a higher energy price environment, which, over time, is likely to become the norm as geopolitical and climate risks intensify.
Rising energy costs are already beginning to reset the underlying economics of businesses. As input costs move higher, margins come under pressure, and the dispersion between efficient and inefficient operators becomes increasingly visible.
Over the past decade, we have seen repeated energy price shocks, but their impact has not persisted. Each time, falling energy prices and abundant liquidity compressed the gap between efficient and inefficient operators once again. That dynamic is now being challenged. As it shifts, the market’s definition of quality is likely to evolve with it.
Businesses that generate output with lower resource intensity are inherently less exposed to cost shocks and better able to sustain margins. In a more volatile and cost sensitive environment, this is not a sustainability argument. It is a fundamental driver of financial resilience.
We are beginning to see early evidence of this dynamic. Since the market peak at the end of February, resource efficient companies have shown relative resilience compared to less efficient peers in a broadly negative market.
The pattern itself is not unfamiliar. We saw a similar repricing in 2022, when rising input costs reasserted efficiency as a key determinant of returns. The current environment appears to be moving in that direction, although it is still developing.
This does not imply a smooth path. Energy has been one of the strongest performing sectors, which has created a headwind for strategies that are structurally underweight. That is not new, but it is a reminder that short term outcomes can diverge from longer term drivers of return.
Our approach remains consistent. We are not attempting to forecast geopolitical developments or short term commodity movements. Our focus is on identifying businesses that are structurally positioned to perform in a world where resources are more constrained, more expensive, and more volatile.
Alongside a more complex market backdrop, it has also been a constructive month for the firm.
We were pleased to announce the appointment of Mark Hardiman as Chief Financial Officer. Mark brings over two decades of experience across global asset management, including senior roles at Aberdeen, HSBC Asset Management and BNY Mellon. His appointment strengthens our leadership team at an important stage in the firm’s development.
We were also honoured to receive two industry awards. Osmosis was recognised for Best Specialist ESG Research at the ESG Investing Awards*, reflecting the depth of our research, particularly in emerging markets. In the same week, we were named Equities Manager of the Year at the Pensions Age Awards**, recognising the consistency of our investment approach.
Awards are not the objective. But they do provide external validation that the direction of travel remains well aligned!
Please feel free to reach out to the team if you have any questions on the above.
Best regards,
Ben Dear
CEO, Osmosis Investment Management
Important Information
*The ESG Investing Awards are free to applicants and open to financial institutions and vendors. This award relates to the annual period December 2024 to December 2025 and was awarded on 6 March 2026. ESG Investing independently provided Osmosis with a questionnaire to be used in the preparation of the third-party rating or award.
**The Pensions Age Awards are free to applicants and open to all UK pension scheme or provider firm which serves pension schemes in the UK. This award relates to the annual period October 2024 to October 2025 and was awarded on 3 March 2026. Pensions Age independently provided Osmosis with a questionnaire to be used in the preparation of the third-party rating or award.
Osmosis Investment Management UK Limited is the receiver of these awards and is referred to throughout as ‘Osmosis’.
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