Fads and fundamentals

Ahead of COP28, the 2023 United Nations Climate Change Conference, many sustainability propositions were held to account, but for their execution rather than the thesis.

A column in the Financial Times argued that despite some setbacks due to inflation, rising costs and project delays, wind and solar power generation were due for a renaissance, with solar likely to take the lead. And The Economist contended that the world needed to do better on keeping its commitments to climate change mitigation, but that definite progress has been made. Meanwhile, Time magazine celebrated on its front cover the 100 most influential leaders driving business to real climate action.

None of this suggests the bursting of some kind of green bubble that some right wing commentators no doubt dream of.

Andrés Gluski, chief executive of power firm AES, told the FT in an interview that investors were making a “big mistake” given the scale of the climate crisis. He was speaking in the context of a 31% decline in the S&P Global Clean Energy Index since January 2023, according to FT figures, versus a less than 1% drop for the S&P 500 Energy Index.

Things may have improved for oil and gas, but it’s hard to see that this in itself justifies the selloff in alternative energy. After all, traditional energy projects are as vulnerable to issues like higher capital costs and inflation, cited to explain the clean power selloff. It looks very like faddism rather than fundamentals is at play here.

AES has both fossil fuels and renewables in its portfolio, but it’s clear which way they see the wind blowing. Apart from Wall Street short-termism, Gluski could just as well have blamed asset management firms rushing to roll out suboptimal ESG and sustainability products when these were flavour of the month, only to turn against them when the wind of investment fashion shifted.

The transition of renewable energy from a crusade to a serious established business sector, warts and all, is perhaps a healthy development. The more that renewables are painted in quasi-ideological terms, the more room there is for ideological opponents to paint them as ideology rather than practicality. It’s a lot harder to dismiss renewables as woke when they have already woken up to regular business realities.