Railways

Environmental problem

Transportation accounts for approximately 9 billion tonnes of CO₂e annually

Transportation is the circulatory system of the modern economy, but it is also one of its largest environmental liabilities. Every year, the industry moves 68 trillion passenger-kilometers and 170 trillion tonne-kilometers of freight, the equivalent to every single person on earth traveling around 8’000 km every year transporting 2.5 tonness of goods.

The environmental footprint is substantial: transportation accounts for approximately 9 billion tonnes of CO₂e annually, around 15% of global greenhouse gas emissions, with energy demand and carbon output its most visible impacts.

The environmental debate therefore often focuses on decarbonisation, and in particular on replacing internal combustion engine vehicles with electric alternatives. This is essential, but it is only one part of building a sustainable transportation system. Cars, even when electric, have extremely low utilisation rates and move significant vehicle mass for just one or two passengers in most cases, while contributing to local pollution through tyre wear and brake dust.Aviation has an even higher emissions intensity per passenger-kilometre and currently has no cost-competitive zero-carbon alternative: sustainable aviation fuels are still 3-5x more expensive than fossil jet fuel, while electric aircraft remain limited in range and carrying capacity.

The challenge is therefore not only to change the powertrain and eliminate fossil fuels, but also to improve the efficiency of the transportation system as a whole.

Rail is structurally advantaged, but not a universal substitute

Rail transport is structurally advantaged from an environmental perspective: steel-on-steel contact minimises rolling resistance, trains carry large volumes of passengers and freight at high utilisation rates, and the mode is extensively electrified, allowing it to benefit directly from grid decarbonisation. The result is a striking efficiency differential. Rail is one of the most sustainable modes of transport, moving around 8-10% of global passengers and freight while accounting for just 1% of transport sector emissions, with emissions per passenger-kilometre or tonne-kilometre some 70-80% lower than road equivalents.

However, railways are not a universal substitute. Their applicability is limited by the fixed nature of the network, lower route flexibility, weaker last-mile capillarity and the need for sufficient demand density to justify high infrastructure and operating costs. Reliability is also often a critical flaw: rail networks are shared, highly scheduled systems, where delays or infrastructure failures can cascade across routes, eroding passenger and shipper confidence.

In passenger transport, modal shifts work best where density, distance and network quality align. High-speed rail is particularly effective on intercity corridors of roughly 300–800 km, where rail can compete with air on door-to-door travel time. In these corridors, when rail’s door-to-door travel time is no more than around one hour longer than flying, rail can often capture more than half of passenger demand. Routes such as Paris-Lyon, Rome-Milan and Paris-London illustrate what high-speed rail can achieve when competitive with air: market shares of 70-90% and meaningful emissions reductions at scale. In Europe, rail passenger traffic has grown faster than car travel over the past two decades, supported by the expansion of high-speed networks across the continent.

The more striking transformation, however, has occurred in China, where sustained infrastructure investment has driven a fourfold increase in high-speed passenger traffic over the past ten years.

The use of railways for freight has experienced a different dynamic to passenger rail. It remains highly competitive for heavy, regular, long-distance flows, but less suited to fragmented, time-sensitive or highly distributed logistics. Rail remains therefore more exposed to heavy industries and bulk shipments, while road freight is more flexible for lighter and more fragmented supply chains. Overall rail volumes have therefore declined both in Europe and in the US, reflecting a structural shift in the composition of goods transported toward categories where trucks hold a natural advantage.

Investment opportunities

The global rail supply market is worth approximately €220 billion annually and is expected to grow at around 3% per year.

Railway infrastructure owners and operators are often government owned and therefore not accessible as investments, with the notable exception of railway companies listed in the US. Therefore, investment opportunities are more often found upstream in the supply chain. The global rail supply market is worth approximately €220 billion annually and is expected to grow at around 3% per year. While growth is limited, much of the value is linked to maintenance, replacement and renewal of an installed base of long-lived assets, providing in many cases stable and recurring revenues.

Furthermore, the headline growth rate masks more attractive pockets of expansion that can deliver above-market growth within an otherwise mature industry, such as signalling and control, automation and digitalisation and electrification. There are also significant differences at a geographical level: investments in rail infrastructure in Italy and Germany for example have been growing at double digit rates, and other major European countries such as France and the UK have signalled material increases in planned capital expenditure ahead.