We have seen two major steps in the European regulation intended to promote sustainable investment and prevent greenwashing. None has been without controversy and concerns but it continues to move the industry in Europe ahead at a faster pace than elsewhere.
The Inflation Reduction Act (IRA) was signed in law by President Biden on 16 August 2022 after House Democrats approved the biggest-ever federal investment against climate change with a 220 to 207 vote.
In 2021, the 27 EU member states and the European Parliament agreed to enshrine the goal of carbon neutrality by 2050 in a „climate law“. And this „Green New Deal“ is much more than just wishful thinking, as it not only sets ambitious targets but more importantly provides for massive investments, particularly in infrastructure. So to make the most of it, the biggest winners could be direct investments in infrastructure projects.
During the synchronised sell-off in markets in January – mainly due to massive sector rotation in favour of “value stocks” – clean energy sector stocks suffered. And yet, the transition to clean energy keeps accelerating.
Unlike large caps, where it is difficult to add value and where passive strategies can provide an effective response, for small caps, active management offers a real opportunity to outperform the market by a wide margin. Not to mention its clear benefits in terms of responsible investment and shareholder advocacy.
Sustainable investment continues to charge on. Indeed, according to PwC, more than half of all planned ETF launches for 2022 are expected to be ESG tilted, including 80% of those in Europe. Expectations of investors alongside corporations continue to rise, alongside growing concerns about greenwashing.
In a sign of the maturation of the sustainable investment industry greenwashing is moving up the agenda, with recent studies across developed markets highlighting this as a top risk identified by investment professionals for 2022. Yet, even if stricter regulations are now in place in Europe and if new accounting standards are planned, it is essential that the players in the industry discipline themselves to fight against this scourge. The very legitimacy of sustainable investment is at stake.
After a fabulously supportive year in 2020 for Clean Energy, 2021 may be best described as a whip lash. Looking into 2022, there are clearly the usual suspect headwinds. However, we also foresee multiple strong tailwinds from various directions…
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While global leaders convened in Glasgow to achieve a low-carbon future, we can reflect on a very different picture in current energy markets.