ESG Investing  

Has Covid changed ESG investing?

Has Covid changed ESG investing?

An investment expert has forecast that clean energy stocks will eat fossil fuel funds “for breakfast” in the near future.

Terence Moll argued that technology, regulation and client demand will continue to drive investors’ growing appetite for environmental, social, and governance funds until fossil fuel stocks eventually die out.

Speaking at FTAdviser’s webinar ‘Has Covid-19 changed ESG investing for good?’ on October 29, the head of investment strategy at 7iM said: “ESG indices are biased towards winning companies of the future and have far less exposure to the losers of the past.

“Clean technology – the kind that is associated with ESG companies – has raced ahead and productivity is up and prices have fallen.

“So now it is cheaper to produce using clean tech rather than using the old, dirty stuff. This is ultimately the reason why fossil fuel stocks are doomed. Clean energy from solar and wind are going to eat them for breakfast, probably in the next few years, and there is a simple reason for this.”

Mr Moll explained: “Fossil fuels are a resource where the more you mine of a resource, the more costs rise. Solar power is different – the more solar you install, then the more prices fall. Look what happened to oil stock in 2020. There was a huge crash in oil demand and it will take a while for the demand for oil to recover, but I don’t think it’ll ever get back to 2019 levels.

“We have seen peak oil. Let me repeat, I firmly believe that we have seen peak oil. Clean energy will continue to take over instead. This is why I think ESG stocks are going to outperform in the long run. Dirty, nasty, badly-run companies are going to get crushed by their clean, well-managed, tech-savvy competitors. Taking a 50-year view, I am not betting on Chevron and Shell.”

Future of energy

His comments come as electricity generated from renewable resources has steadily soared over the past few years. In fact, 2019 was a milestone year for Britain, as it generated more of its electricity from zero carbon fuels than from fossil fuels.

However, Mr Moll said he believes the current coronavirus pandemic is the defining factor that has rocketed the demand for ESG funds this year.

He said: “When we look back from the year 2030, I suspect we will realise that this year was the year that ESG really took off because of Covid-19 and its aftereffects.

“Increasingly, investors not only want their money to make more money, but also to make the world a better place, or at the very least not to make it worse. The pandemic has reminded us that human life is short and fragile. It makes us think about our responsibilities to the future – the kind of planet we will be leaving to our grandchildren and that points to ESG investing. In short, Covid has given ESG a huge boost.”