Economist | The green boom

The green boom

Hot air

Sustainable investing is rife with greenwashing. Genuine transparency, not box-ticking, is the cure

May 22nd 2021 | words 834

INVESTORS ARE all too familiar with the rise of Tesla. Shares in the electric-vehicle maker are now worth nearly nine times what they were at the start of 2019. But it is not an exception. As political leaders across the world start to send clearer signals about their willingness to tackle climate change, the private sector is getting enthused, too, and a green boom is under way.

Over 40 green firms have seen their share prices triple since the start of 2019. Six have outperformed Tesla. The beneficiaries include all manner of emission-sparing companies, from solar-panel firms to makers of hydrogen fuel cells.

Meanwhile many big companies in other industries have taken to boasting about their green credentials. Renewable-energy shares have paused in recent weeks, in part because investors worry about the prospect of higher interest rates, but other assets have taken off. In Europe the price of carbon has soared to a record high. The prices of metals, such as copper and lithium, that are used in electric cars, are spiking as well.

spike

spike / spaik /

verb [V] (especially NAmE) to rise quickly and reach a high value

The US dollar spiked to a three-month high.

IDIOMS

spike sb's 'guns (BrE)

to spoil the plans of an opponent

The boom reflects soaring demand from investors. Everyone from oil majors to day-traders on WallStreetBets is splurging on climate-friendly projects and securities. Meanwhile the asset-management industry is marketing a style of investing that purports to take into account environmental, social and governance (ESG) factors. So far this year, inflows into ESG funds accounted for about a quarter of the total, up from a tenth in 2018. On average, two new ESG funds are launched every day.

splurge

splurge / spld; NAmE splrd /

noun [usually sing.]

(informal) an act of spending a lot of money on sth that you do not really need

verb [VN V]

~ (sth) (on sth) (informal) to spend a lot of money on sth that you do not really need

()()

Unfortunately the boom has been accompanied by rampant greenwashing. This week The Economist crunches the numbers on the worlds 20 biggest ESG funds. On average, each of them holds investments in 17 fossil-fuel producers. Six have invested in ExxonMobil, Americas biggest oil firm. Two own stakes in Saudi Aramco, the worlds biggest oil producer. One fund holds a Chinese coal-mining company. ESG investing is hardly a champion of social virtue either. The funds we looked at invest in gambling, booze and tobacco.

rampant

rampant / rmpnt /

adj.

1. (of sth bad ) existing or spreading everywhere in a way that cannot be controlled

SYN unchecked :

rampant inflation

Unemployment is now rampant in most of Europe.

2. (of plants ) growing thickly and very fast in a way that cannot be controlled

rampantly adv.

booze

booze / buz /

noun [U]

(informal) alcoholic drink

verb [V]

(informal) (usually used in the progressive tenses ) to drink alcohol, especially in large quantities

():

He's out boozing with his mates.

Governments are starting to pay attention. Under Donald Trump, American regulators tried to hobble ESG investing, which the White House saw as a left-wing conspiracy. By contrast, President Joe Bidens administration sees it as a potentially useful weapon to fight climate change. The Securities and Exchange Commission, Wall Streets regulator, worries that ESG funds are misleading investors.

hobble

hobble / hbl; NAmE hbl /

verb 1. [V , usually +adv. / prep.]

to walk with difficulty, especially because your feet or legs hurt

SYN limp :

The old man hobbled across the road.

2. [VN] to tie together two legs of a horse or other animal in order to stop it from running away

()()

3. [VN] to make it more difficult for sb to do sth or for sth to happen

What should governments do? One possibility is to follow the European Unions approach. Its latest Green Deal includes lots of new rules about sustainable finance. Underpinning them is an elaborate state-directed taxonomy which covers some 70 different activities and aims to tell investors what is green and what is not. Inevitably, the effort has run into trouble. Countries have been furiously lobbying the European Commission to ensure that their favoured source of energy is labelled as green. Poland and Romania, among others, want natural gas to be added to the green list, because they are planning to use it to replace coal.

taxonomy

taxonomy / tksnmi; NAmE -sn- /

noun (pl. -ies)

1. [U] the scientific process of classifying things (= arranging them into groups)

plant taxonomy

2. [C] a particular system of classifying things

taxonomic / tksnmik; NAmE -nmik / adj.

Rather than the EU playing God, investors can decide for themselves what is green. But they need a big improvement in corporate disclosure. The current system of largely voluntary reporting is riddled with problems. Firms disclose reams of irrelevant puffery, while often failing to reveal the few things that matter. Ideally, an asset manager would be able to work out the carbon footprint of their portfolio and how it might change over time. But many firms fail to disclose their emissions rigorously and often the measures made public by individual firms overlap, leading to double-counting when you add them all up.

ream

ream / rim /

noun

1. reams [pl.] (informal) a large quantity of writing

():

She wrote reams in the exam.

puffery

noun

the act of praising someone or something too much in a way that is not sincere:

It's usually easy to tell the difference between sales puffery and fact.

His book avoids academic puffery and offers real insight.

Advertisers use a great deal of puffery.

Statements made in an explicitly joking manner are not puffery.

Puffery does not affect the buying behaviour of consumers.

A better system would force companies to reveal their full carbon footprint, including emissions from the products they sell and the goods and services they buy. It would help if big polluters also revealed how they expect their footprint to change and the amount of capital expenditure that goes toward low-carbon investments. That way an investor could work out how much pollution their portfolio is responsible for today and how it might look tomorrow.

The results of such disclosure may come as a surprise. We estimate that listed firms that are not state-controlled account for only 14-32% of the worlds emissionsso green investing can be only part of the answer. About 5% of these firms account for over 80% of the total emissions. They are mostly oil producers, utilities, cement firms and mining companies. Better disclosure would also show that only a tiny number of firms are investing heavily in renewable energy or breakthrough technologies.

The combined effect would be to expose as bunk the idea that swathes of the corporate world and asset-management industry are planet-saving heroes. And it would help investors put their money into truly green firms, ensuring a better allocation of capital and a faster energy transition.

bunk

bunk / bk /

noun (old-fashioned, informal) nonsense

SYN bunkum

swathe

swathe / swei /

noun (also swath / sw; NAmE sw / )

(formal) 1. a long strip of land, especially six on which the plants or crops have been cut

():

The combine had cut a swathe around the edge of the field.

Development has affected vast swathes of our countryside.

2. a large strip or area of sth

The mountains rose above a swathe of thick cloud.