Sustainability, Energy Transition, ESG

ESG Investing Losing Favor; As Profits Fall Do Companies Lose Faith
December 8, 2023
Companies Mentioned:
Air Products, Tesla, Fisker, ExxonMobil, Li-Cycle, Republic Services
Commodities Mentioned:
ESG, Hydrogen, Fossil Fuels, EVs, SAF, CO2, CCS, Nuclear, Renewable Power, Polyethylene, Polypropylene, Lithium
Subjects Covered:
Recycling, Renewables, Carbon Capture, Emissions, New Energy, The Hydrogen Economy, ESG Investing, Climate Litigation, Clean Fuels

C-MACC Weekly Sustainability and Energy Transition Report

ESG Investing Losing Favor; As Profits Fall Do Companies Lose Faith

  • ESG investing is dying, not because of “anti-woke” but because of poor definition
  • The idea has been focused on making investors feel good versus doing good
  • Funds that have had an activist approach are also failing – not enough interest
  • We comment on the COP battle around fossil fuel phase out or phase down
  • Otherwise, recycling casinos, more CCS interest, SAF, bankruptcy, and lithium

First: Money is leaving ESG funds; methodology is still lacking; do standards fall?

We have been very long-term skeptics with respect to the future of ESG investing and on the next page we list some links to past work. Most successful investment techniques involve very defined methodology and are most often based on large amounts of easily verified empirical data. As accounting standards improved over the last 100 years, the data became more uniform, more directly comparable from one company to the next, and more reliable. The only reason why we can draw the chart in Exhibit 1 is because we have reliable and consistent historical data for both Air Products and the S&P500 (we choose Air Products as it is one of the few companies that has not transacted at such a large scale that history becomes less relevant). The challenges of ESG investing center around a complete lack of consistency, both in the data available, the way in which the data is being used, and the methodologies employed by those managing the funds. Regulation has driven better accounting practices and consistency for overall investing, but it is sadly lacking in ESG – it has been promised, but never delivered – and it may now be too late. To us this is not a surprise and we have used some colorful language to describe the mess that is ESG investing with our clients since well before we founded C-MACC. In its current state, it achieves nothing as it does not encourage better behavior – with even the definition of what might constitute better behavior up for debate. This risk now is that everyone loses faith including the corporates.

Exhibit 1: This is an analysis of valuation relative to the S&P 500 – you cannot do anything directly comparative with ESG ratings or performance (APD looks cheap)

Source: CapitalIQ, C-MACC Analysis, December 2023

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