There is an old climate joke that goes: “You may not believe in climate change, but your insurance company does.” If you’re in the market for new environmental humor — and really, who is not? — you can now update this to say: “You may not believe in climate change, but the stock market does.”
For much of this year, the S&P Global Clean Energy Index has outpaced the S&P 500 Index, the Nasdaq 100 Index and the MSCI World Index, Bloomberg News said last weekend as part of a report about Jefferies analysts unexpectedly declaring these the “glory days” for green tech.
Anyone who has been following the news would be forgiven for assuming these are not salad days for clean energy. Dog-food days, more like it. Whatever-this-is days. The White House and an eager US Congress have shredded environmental regulations and cleantech subsidies, thrown up roadblocks to new wind and solar projects, and generally tried to make life as comfortable as possible for the fossil-fuel industry running the US government and as uncomfortable as possible for that industry’s upstart rivals.
Illustration: Yusha
Yet, those same clean-energy sources that have been banished to the US’ political wilderness are also in hot demand at home and around the world, thanks in part to US President Donald Trump’s determination to put energy-hungry artificial intelligence (AI) everywhere all at once.
As Bloomberg News said, many of the stocks leading the boom in the S&P clean-energy index also have ties to the boom in AI. In other words, this might not be entirely a bet on a net zero future, but partly people seeing a gold rush and buying shovel makers. If the robot-industrial complex is a bubble just waiting to pop, then green tech’s lofty roost could be precarious.
Then again, the S&P and the NASDAQ 100 also look like AI-rich souffles these days, making cleantech’s outperformance all the more notable. While the use case for AI is still in flux — would it save humanity or just stupefy it with slop — the need for reliable energy has been clear for centuries.
Other stocks related to climate change are also beating the broader market. Bloomberg’s Prepare and Repair Index, made up of companies that benefit from the rise in expensive climate-fueled disasters, has absolutely trounced the S&P over the past five years, more than doubling its return, Bloomberg Green said recently. These are almost the opposite of AI stocks: stuff such as hardware stores, insurers and waste managers.
The clean-energy and prepare-repair indexes represent two sides of the climate-change coin: mitigation and adaptation. Although billionaire Bill Gates has somewhat fatalistically suggested the world lean into the latter, he is also still investing money in the former. His Breakthrough Energy Ventures is part of a group of more than a dozen venture capitalists, called the All Aboard Coalition, trying to raise US$300 million to invest in clean tech. Investors pumped US$56 billion into such companies in the first three quarters of this year, more than in all of last year, according to BloombergNEF (BNEF).
For every US$1 lost to climate disasters last year, US$1.47 was invested in the energy transition that could help prevent future damage, BNEF said.
Two decades ago, only US$0.12 was spent for each US$1 lost to climate disasters.
Total global investment in the energy transition from planet-heating fossil fuels hit US$2.1 trillion last year, according to BNEF, a record that could be broken this year. Investments in wind, solar and other renewable-energy sources alone hit a record US$386 billion in the first half of this year, with a 36 percent pullback in the US from the second half of last year more than offset by a 63 percent jump in Europe.
Meanwhile, China has accounted for half of the world’s investment in renewables so far this year. As much as Trump crows about energy dominance, his crusade against wind and solar is ceding global energy dominance to China, and geopolitical influence along with it. While Gates muses about raising living standards in developing Africa with AI-enabled phones and genetically modified seeds, China is already doing it with inexpensive solar panels.
It behooves me to point out that coal-mining stocks have also boomed in the past five years. For all its green spending, China still relies too much on coal and shows no sign of losing its appetite. However, the costs of running coal power plants keep rising, while solar and wind get cheaper. Little wonder that, for the first time ever, renewables generated more of the world’s electricity than coal in the first half of this year, according to the think tank Ember.
If climate concerns are not enough to kill coal in the long run, then economics would.
Niall Smith, a quantitative researcher at Bloomberg, recently split some risk-premium atoms and discovered that companies with higher climate exposure also had higher capital costs. This might not be as splashy as the index charts above, but it is still more evidence that, for all the climate-change denialism in our discourse these days, markets are still grounded in reality.
Mark Gongloff is a Bloomberg Opinion editor and columnist covering climate change. He previously worked for Fortune.com, the Huffington Post and the Wall Street Journal. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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