In the midst of the fight against climate change, investments are also going green and it is no coincidence that the financial markets are witnessing a race for stocks linked to the energy transition and decarbonisation. Just think about the action Tesla, literally exploded: if in January 2020 it was quoted at 88.60 dollars, a year later, in January 2021 it reached a maximum of 880 dollars (now trading around 625 dollars). But be careful, because this interest could become infatuation and among the experts there are those who do not even exclude the risk of a speculative bubble on green assets. To put the flea in the ear is Wolfgang Fickus, CFA, Product Specialist di Comgest, in an analysis entitled precisely “Watch out for the green bubble”.
“Even if one of the roles of the financial markets is to take risks to finance the future, growth and innovation, it is necessary to evaluate whether today it is not we are moving too fast on green stocks“, Warns the expert, looking to the past and remembering the reason for the outbreak of technology bubble in 2000Although the investors were right, especially when it comes to the tremendous potential of ecommerce, it was too far, five to ten years in advance, because neither the infrastructure nor the consumer was ready for these new technologies.
What if today’s green wave is similar to the euphoria that made tech stocks soar at the time, with the outcome we know? Experience teaches that sometimes it is better to be wary of fashions and according to the Comgest expert, investing in green stocks today is not necessarily the best way to contribute to the decarbonisation of the economy and to be successful in long-term financial investments. His suggestion is to adopt instead a bottom-up approach, which consists in evaluating the potential performance and taking into account climate issues on a farm by farm basis. In this way, he explains, one avoids being seduced by what is “trendy” and future winners are identified of long-term growth that is respectful of the environment. This approach can also lead to investing in old economy players who, with a long history of innovation, could provide solutions to reduce the carbon footprint of their businesses. Supporting companies that reduce the carbon intensity of polluting industries can also be crucial to a successful climate effort.
But beyond the selection of stocks to include in the portfolio, financial markets themselves, investors and asset managers can also make an important contribution to accelerate change in the corporate world and fight long-term global warming. This is the case of the appeal to the Brazilian government by some asset management players, which correspond to a total of 4,000 billion dollars (approximately 3,265 billion euros) of assets under management, to stop deforestation in the Amazon. Another example is the Carbon Disclosure Project (CDP), which by bringing together 600 investors, aims to reduce water consumption, curb deforestation and identify climate risks through the 9,600 companies around the world that have already responded to its appeals.
In short, there is no miraculous solution – concludes the expert – even if the explosion of green stocks on the stock market would have us believe it.