Despite investment in ESG funds during 2021, research shows that clean energy funds fared the worst in the sustainability market, writes Fiona Keating
Looking at the performance in the sector, the ESG and ethical funds that lagged were the iShares Global Clean Energy UCITS ETF which suffered a poor performance, losing 23%.
UBS Luxembourg Selection Active Solar was down by 16.3%, and Shroder ISF Latin American dropped by 10.8%, according to FE Analytics.
Despite many nations pledging to move towards clean energy funds and phasing out coal and automobile manufacturers focusing on electric transportation, these moves failed to make much of a dent on the ESG market.
Still more work needed on commitments
The COP26 in Glasgow last year, did little to inspire confidence in renewable energy stocks following the voluntary climate change pledges, with little concrete plans and policy uncertainty.
Other factors suppressing clean energy funds was Joe Biden’s ‘Build Back Better’ bill suffering a severe setback. The $1.8trn fund which seeks to fund measures to combat the climate crisis failed to gain the backing of Senator Joe Manchin. “There’s no negotiations going on at this time,” he told reporters.
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“The outlook for green stocks is challenging because of worries about rising interest rates tied to inflation, unpredictable US politics and regulatory manoeuvres like California’s decision to sharply lower subsidies and add new fees for home solar users,” said Sophie Karp, analyst at KeyBanc Capital Markets according to Bloomberg.
Calculating the cost
The estimated cost of a move toward renewable energy could stand at around $342bn, according to figures from researchers at Harvard University, Georgia Institute of Technology, and Syracuse University.
However, there are signs of improvement in clean energy funds. Albemarle stock has been the strongest performer year-to-date, increasing by around 52%. The company is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems.
But the downside is that the largest mining companies – including lithium – as measured by CO2 emissions in 2016, were responsible for 211.3 million metric tonnes of carbon emissions in just that year.
Time is running out
Big oil and gas companies have made certain promises. BP has said it will cut its oil and gas output by 40 percent by 2030 and increase its low-carbon investment tenfold by then.
Other ambitions include ramping up its annual low-carbon investment to $5 billion per year by 2030.
“We need to reinvent BP,” said CEO Bernard Looney .“We expect to invest more in low-carbon businesses — and less in oil and gas — over time,” he added.
In-depth details on exactly how BP will reach net zero have yet to be released.
Clean energy experts believe it’s too little, too late. May Boeve, executive director at climate change organisation 350.org said: “Fossil fuels are not a safe investment: the sector is too volatile to be the basis of a resilient economy. It is time to divest from fossil fuels and invest in more sustainable, resilient, and regenerative economic systems, based on renewable, accessible and just energy sources.“
What are your views on clean energy funds? Get in touch.