‘Green’ stocks plummet to lowest levels in years

The S&P Global Clean Energy Transition Index, a key benchmark for clean-energy companies, has dropped by 16 per cent over the past year, despite the so-called “green” transition and strong backing from government and media.

The S&P index, which tracks green energy companies in developed as well as emerging markets, had soared during the Covid-19 pandemic.

Since then, though, momentum has faded, wiping out all gains from the past five years.

“Valuations are at extremely low levels,” Handelsbanken’s portfolio manager Patric Lindqvist told Swedish economic magazine Affärsvärlden on March 21.

“This is partly due to de-globalisation and political shifts, which have meant that there has been great uncertainty.”

Lindqvist also noted the slow pace of implementing regulations that were meant to accelerate climate solutions.

Until recently, environmental, social and governance (ESG) criteria were seen as a “golden ticket” for investors, promising both profitability and a feel-good factor of supporting sustainability.

Green stocks, tied to renewable energy, electric vehicles and eco-friendly innovations, rode a wave of optimism and attracted a lot of cash.

Now, though, the tide has turned.

Rising interest rates, inflationary pressures and a global shift toward energy security over ideology have hammered those sectors.

Solar and wind companies have been facing supply-chain woes and higher costs, while electric-vehicle stocks grappled with softening demand and fierce competition, in particular from China.

Major ESG-focused funds have underperformed broader market indices in recent quarters, with some “green darlings” including hydrogen fuel-cell makers and small-cap clean-tech firms seeing share prices collapse by double digits.

Swedish electric battery battery maker Northvolt has filed for bankruptcy in Sweden after it was unable to find money to pay its taxes. https://t.co/Al2OcIcCpR

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Despite that, Lindqvist remained positive. “The degree of maturity among the technologies for solving the climate crisis is significantly greater now than five years ago, and thus the technology risks today are somewhat lower,” he said.

Deirdre Cooper, head of sustainable equity at global investment manager Ninety One, told the Financial Times on March 16 that pessimism hanging over the decarbonisation sector was “exceptional” and mismatched with underlying company performance.

“Companies that we hold in the decarbonisation sector have seen strong growth and stable returns, but they have underperformed in terms of share price,” she said.

“I have never seen such bearishness in terms of the valuation for companies with structural growth … The market is assuming no growth for decarbonisation.”

A day later, the FT reported that Aviva Investors, a division of French insurance giant Aviva, had revised its plans to divest from companies that, in its assessment, were not making sufficient efforts to decarbonise.

A significant amount of government funding originally allocated for Covid pandemic relief and recovery has been redirected or repurposed toward green projects in various countries.

Governments have sought to align economic recovery efforts with climate and sustainability goals, often under the banner of a “green recovery”.

The European Union’s €750 billion Next Generation EU recovery package, launched in response to the pandemic, earmarked approximately 30 per cent of its funds – around €225 billion – for climate-related initiatives under the European Green Deal.