Strategy

Jungle Fever

Soaring interest in ESG has exciting implications, but risks pushing some stocks to distinctly unsustainable valuations...
William Heathcoat Amory
Last update 17 February 2021

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.

In December we highlighted that ESG was the surprise ‘thematic winner’ of 2020. Perhaps not in performance terms (can anything beat the FAANGs?), but almost overnight it has become a standard part of fund presentations. Asset flows into ESG funds also back up our contention, with huge growth in assets seen by ESG-related funds during 2020. However, as we discussed in December, within the equity trust universe there are relatively few equity trusts that offer ‘pure’ exposure to the theme. And of those that do, many stand at chunky premia.

The new US presidency is focussing on climate change as one of its four key pillars. Larry Fink, CEO of BlackRock, published his ‘Dear CEO’ letter in January, which for the second year in a row ‘majored on’ (as they say on that side of the pond) climate change – we touch on elements of his letter below. Suffice to say, the CEO of the world’s biggest asset manager thinks that aside from posing a big risk to traditional portfolios, “the climate transition presents a historic investment opportunity”. It would appear that increasingly everyone else thinks so too.

We examine the potential and pitfalls of being greenwashed, and look for the best opportunities to avoid it.

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