LONDON: The booming market in green finance faces a test this year as more investors balk at lofty share price tags even on loss-making companies and a gradual economic recovery from the pandemic boosts returns on conventional energy assets.
Cau last year cut his overweight recommendation on ESG utilities and last month upgraded conventional energy stocks to overweight, citing depressed investor positioning and the sector's ability to capitalise on a post-pandemic recovery. Cumulative green bond issuance, used for funding projects such as clean energy, surpassed US$1 trillion in December, according to the Climate Bonds Initiative, though Spain's BBVA estimates this is under 1per cent of the global bond market.
"Companies, which in many cases have been lagging for years because their earnings were low or negative, have performed... Money flows have been so strong that in some cases, you can question if it is still reasonable," Tijs said.At the height of the pandemic last year, more than 80per cent of sustainable equity indices outperformed non-ESG peers, the Institute of International Finance estimates.
Carmaker Tesla enjoyed its first profit in 2020 and solar firm Enphase has been profitable for two years.Sharon Bentley-Hamlyn, investment director at Aubrey Capital Management, has 2per cent-3per cent of her portfolio in green energy. Green issuers in the euro investment-grade market last year conceded an average 8 bps"new issue premium," ABN AMRO estimates, less than half that paid across the broader market.