ESG Under Attack

As global earnings deteriorate, fear of missing out on green stocks is overshadowed by fear of getting burned. Interest rate hikes and uncertainty have hurt growth stocks, including those in the climate sector, while gas price spikes have benefited fossil fuel companies in the short term. However, 2022 saw investment into clean energy match that of fossil fuels,?with companies in the iClima Global Decarbonization Enablers Index seeing YoY revenue growth above 40%.?The US Inflation Reduction Act may positively impact the revenue growth and profitability of relevant companies, leading to a potential green rally in 2023.?The CLMA portfolio comprises 70% profitable companies, and it is plausible that investors will decouple green growth from growth in general.

March witnessed an overall decline, the banking crisis has worsened the already complex macro scenario, with?Silicon Valley Bank and Signature Bank?collapsing in March. These sparked fears of a bank run as billions in deposits were stranded. While UBS's takeover of CSFB eased immediate concerns, worries persist over a global banking crisis and a severe recession due to higher interest rates and reduced credit from US regional banks. The situation has added to the complexity of the macro scenario.

The OPEC+’s decision to?cut oil production by 1.66 million barrels?per day in a bid to support oil prices reinforces the risk of fossil fuel reliance on economic growth,?it also adds momentum to the energy transition. OPEC's control over oil prices is increasing as western oil majors invest more in alternative energy. However, this leaves fossil fuel supply and prices at the mercy of a few producers, often ruled by non-democratic officials whose main interest is to push up prices and profits. This decision adds more volatility to the already challenging macroeconomic environment, with potentially inflationary effects and growth constraints in oil-consuming regions.

Despite this overall downturn, the potential for green growth remains a bright spot, although it has not yet been fully recognized.

President Biden?vetoed a GOP-led Congress bill?that aimed to remove the Department of Labour rule allowing ESG considerations in retirement plan investments. This decision is a win for ESG advocates, as it protects ESG as a consideration for retirement plan managers.?While GOP leaders aim to override the veto, it requires two-thirds support from both chambers, making it unlikely.

?ESG has become a household name, but using ESG scorecards with different weights, measurements, and scopes can yield vastly different results.?We, at iClima have developed a unique taxonomy to classify over 60 solutions, mostly in the "avoidance" category, along with "abatement" and "sequestration" solutions.?Additionally, iClima has mapped out key adaptation investments that are also essential solutions in need of proper funding. Read more about the rationale towards our approach in this?Nasdaq article.

?Here's the link to our March 2023 Edition.

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