The Capital Letter: Green Bubble, Minimum Wage, Deficit & More

The week of February 8: the green bubble, the minimum wage, the deficit and much, much more, including the latest in our new podcast series, the Capital Record.

Yes, I am going to talk about bubbles again, but once again about one specific bubble: the bubble in anything (supposedly) green, particularly if it can be tied to the war against climate change.

Like many of the asset-price bubbles of our current moment, this one is not entirely irrational. Not only are green assets being “revalued” (to use a term that implies rather more calculation than is really the case) in the light of the general mispricing of risk that is the product of today’s artificially low interest rates, but, as I have noted before, buying green is supported by some arguments that have little to do with value, but a great deal to do with price.

There are, of course, those investors who believe that the climate “crisis” is sufficiently imminent that companies focused on staving off this apocalypse must be on to a winner. Clearer-eyed buyers, however, are looking at green assets in different ways. Some have noticed the immense emphasis that numerous governments are putting on climate change, emphasis that is creating a flow of money, much of it from taxpayers or extorted consumers, that will benefit businesses in the sector. Other asset managers are busy greening their portfolios in an attempt to attract investment from “socially responsible” investors, who, for good or bad (spoiler: mostly bad) now represent an increasingly important segment of the market.

In a report from August last year, the Financial Times, the Pravda of the Davos crowd, and, as such, an important cheerleader for socially responsible investment (it even has a section nauseatingly labeled “Moral Money”), noted:

Funds that invest according to environmental, social and governance principles attracted net inflows of $71.1bn globally between April and June this year, pushing assets under management in the products to a new high of just over $1tn, according to Morningstar.

Separate UK fund flow data from transaction network Calastone found that the amount of new money invested in ESG equity funds between April and July exceeded the combined flows for the previous five years.

Sustainable funds’ previous niche status means that their market share is still small relative to the $41tn held by all investment funds worldwide.

But growing public awareness of the climate crisis is turbocharging sales of ESG funds. The disruption caused by Covid-19 has accelerated the sector’s growth as investors look for sustainable business models that can withstand market shocks.

“From 2015 to 2017, little or no new money was invested in ESG funds,” said Edward Glyn,…