- Investors may have become overexcited with some green stocks, JPMorgan’s European heads of ESG research said.
- Yet green investing is only just getting started, they said, as Joe Biden and others focus on the climate.
- The research chiefs said the US is unlikely to let the EU be the standard-setter on green investing.
- Sign up here for our daily newsletter, 10 Things Before the Opening Bell.
Green stocks have sold off quite aggressively this month, but fears of a bubble are overblown and a new climate focus from Joe Biden and other governments means environmental investing is only just getting going, JPMorgan’s co-heads of ESG research for Europe have said.
Jean-Xavier Hecker and Hugo Dubourg told Insider the Biden-Harris green stimulus plans, China’s sustainability push and Europe’s new environmental investing rules would all boost the market and create new opportunities.
The recent stock-market volatility – triggered by rising bond yields – has hit green stocks, such as those in renewable energy and electric vehicles, along with tech, after these sectors last year.
The iShares clean energy exchange-traded fund was down 12% in the month to Friday according to Bloomberg data, for example, while the S&P sustainability index has underperformed the wider market. Electric vehicle stocks such as Tesla and Nio have fallen sharply too. The S&P 500, meanwhile, has gained over 3% so far in March.
But Dubourg said: “The stocks that have tumbled are largely solar and EVs, where the valuations exploded at the end of last year. So it’s not really ESG investing overall which has been questioned.”
He said the market is “not being nuanced enough” in its approach to environmental, social and governance investing.
Hecker said investors had focused on the “simplistic trade” in recent months, bidding up green favorites. Tesla is a prime example, rising more than 500% over the last year, but falling around 7% in the month to Friday. Yet the market should “not be too concerned about green bubbles,” he said.
“The climate ambitions of the Green Deal in Europe, of the Biden-Harris platform in the US, of China with its 2060 carbon-neutrality ambition will be much more transformative,” he said. The Biden administration’s advisors are hoping to spend around $3 trillion, with climate change a key focus.
Hecker added that the Biden administration is likely to boost green investing as it tries to match Europe’s advancements on ESG rules. “There is no way the US is going to let Europe be the standard setter on ESG,” he said.
Europe introduced new reporting rules for companies earlier in March that aim to help investors work out which assets really are green. It is part of a wider push by the European Union to set standards for climate-conscious investing.
Green investing had a bumper year in 2020, despite the coronavirus crisis. Goldman Sachs analysts said in a note ESG equity and fixed income funds attracted record inflows in Europe and the US last year, at 184 billion euros ($216 billion) and $50 billion, respectively.
Yet there are growing concerns that the craze for green investing is not as climate-friendly as it makes out. A report from a group of global campaign organizations on Wednesday that the world’s biggest banks, including JPMorgan, have invested $3.8 trillion in fossil fuel firms since the Paris climate agreement was signed in 2016.
A separate report released on Monday by the Climate Action 100+ investor group, which collectively managed $54 trillion, found companies were so far badly failing to live up to their climate pledges.
Mindy Lubber, Ceres CEO and Climate Action 100+ committee member said there is an “urgent need for greater corporate action and higher ambition.”
Hecker and Dubourg – who work independently of JPMorgan’s banking operations – said that although some companies could do more, it will take a while for the effects of commitments to be seen. They said Europe’s new rules were a positive step in this regard, as they provide clear benchmarks for firms to be measured against.
As governments increasingly focus on climate change, new opportunities will crop up in sustainable investing, they said. For example, the Biden administration’s climate plans are likely to extend, or increase tax credits for renewables and support carbon-capture technology.
Hecker said carbon capture is “something which at some point is going to take off because it will be needed as part of the mix… to deliver on the Paris agreement goals.”
The JPMorgan ESG research chiefs said tackling climate change would require even major polluters to change their ways and become much more environmentally friendly.
“There will be no such thing as these stocks increasing by 4,000% again,” Hecker said. “Now you need to be looking for relative winners and differentiated business models.”