Indeed, ESG funds took $84 out of every $100 going into active equity funds from 2019 to 2020. The orthodoxy saw the growing interest and a subsequent surge in liquidity towards ESG funds create an observed 'green premium' on relevant stocks. For all intents, NextEra is classed as a renewable energy company and is the largest in the world. The Juno Beach-based company generates electricity mainly through solar and wind but also has a number of natural gas, oil, and coal-based generating capacity. NextEra Energy ( NYSE: NEE) was a key beneficiary of the old ESG orthodoxy. Coal-generated electricity supply increased in the region by 18% to 579 TWh, reversing a nearly decade-long trend of decline.
This feature was highlighted in 2021 when unusually low wind speeds worsened a power crunch and sent the continent scrambling for thermal coal. Hence, without a material investment in utility-scale battery storage, their suitability for powering developed economies will always be constrained. This was 7% of the globally traded market that now has to be met by other international suppliers.Īgainst what had been material flows of both public and private capital to renewables, the current situation seems surreal for many but renewables have always been intermittent. The European Union in its fifth package of sanctions introduced an import ban on all forms of Russian coal.
The new energy zeitgeist is rapidly being defined by a near visceral need for energy security against the prospect of Russia weaponising gas supplies to Europe and the stream of sanctions implemented to try to starve the Russian war machine. These two events have upended the global order and catalysed an energy crisis that looks set to get worse before it gets better. The New Energy ZeitgeistĪll this happened in the era just before the pandemic. Dutch pension fund Stichting Pensioenfonds ABP is closing out its nearly $16bn-worth of holdings in fossil fuel companies, Oxford University has announced plans to divest its endowment formally from the fossil fuel industry, and BlackRock has said sustainability would be at the heart of its investment decisions. A number have gone further to liquidate all their holdings in such companies. This has essentially made the company a toxic asset for a number of financial services firms in the ESG orthodoxy.Ī plethora of pension funds, university endowments, and asset management firms have pledged to stop investing in fossil fuel companies.
The company produces metallurgical coal for steelmaking, it also produces thermal coal for sale to the domestic and international power generation markets. Louis-based Arch Resources ( NYSE: ARCH) is a coal mining and processing company focused on bituminous and sub-bituminous coal. To its adherents, it was and remains a necessary financial tool to make capital market flows more sustainable. This rapid ramp of inflows into ESG funds and the resulting AUM growth would continue all throughout the pandemic and reach its apex just as the broader stock market peaked in the fourth quarter of 2021.Ĭritics of the rise of ESG say it is starving much-needed investments in the extractive industries, contributing to the energy crisis, and rendering the USA and Europe more dependent on a number of autocratic states. In the following year, ETFs based on MSCI's ESG indexes would jump 148% to reach 67 with AUM also more than doubling its year-ago figure. This meant ESG investing, a growing but still a somewhat obscure component of the financial markets, now had unprecedented political backing from the world's largest economies. This goal became a non-binding climate deal on the back of the 2015 United Nations Climate Change Conference (COP 21) held in Paris just before the start of Winter in the same year.Ī critical tenet of this agreement focused on making capital market flows more consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. The rationale was clear anthropogenic climate change is real so humanity has to restrict the rise is mean global temperature to well below 3.6 ☏ (2 ☌) above pre-industrial levels. The energy crisis was many decades in the making through a material underinvestment in the extractive industries. In retrospect, bad policy decisions would always come back to haunt us.
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