“The Climate Short: Hedge Funds Pile Up Huge Bets Against Green Future” The $5 trillion industry's move against clean energy and green technology may prove more damaging than political pushback
“Despite vast green stimulus packages in the US, Europe and China, more hedge funds are on average net short batteries, solar, electric vehicles and hydrogen than are long those sectors…”
Green | The Big Take
The Climate Short: Hedge Funds Pile Up Huge Bets Against Green Future
The $5 trillion industry's move against clean energy and green technology may prove more damaging than political pushback over "woke" capitalism.
By Sheryl Lee, Ishika Mookerjee and Christopher Udemans
October 21, 2024 at 5:00 AM CDT
The fast money on Wall Street has taken a close look at key sectors in the green economy and decided to bet against them.
Despite vast green stimulus packages in the US, Europe and China, more hedge funds are on average net short batteries, solar, electric vehicles and hydrogen than are long those sectors; and more funds are net long fossil fuels than are shorting oil, gas and coal, according to a Bloomberg News analysis of positions voluntarily disclosed by roughly 500 hedge funds to Hazeltree, a data compiler in the alternative investment industry.
The findings provide a glimpse of how the most rarefied corner of finance has cooled on the investment prospects of a green transition that scientists, along with many policymakers as well as company executives and economists, argue is critical to avoid the most devastating impacts from global warming.
Managers in the $5 trillion hedge fund industry say the reason is obvious: Despite the promises, clean energy and green technology stocks have lagged far behind the broader market. Deep-pocketed institutions are concluding that many climate investments won’t pay off as quickly, or as lucratively, as they’d hoped.
The Bloomberg analysis reveals the preferences of an investor class known for trying to conduct its business outside the glare of public scrutiny.
The hedge funds’ bets have coincided with a wave of momentum that’s been building against key corners of the green economy. Since a recent high in 2021, the S&P Global Clean Energy Index has lost almost 60% of its value, while the S&P 500 Index and the S&P Global Oil Index have soared more than 50%. Impax Asset Management, a $50 billion investment firm that’s made a name for itself as a champion of the clean-energy transition, has seen its market value more than halved over the period.
Renaud Saleur, founder and chief executive officer of Geneva-based hedge fund manager Anaconda Invest SA, says he and his team “have been looking for an inflection point for years” because they’re keen to build investments in the green transition. But despite the stimulus, “we don’t see the inflection as yet.”
Beyond the tougher macro-economic backdrop that green investors have had to contend with over the past few years — with higher interest rates upending capital-intensive projects like offshore wind farms, and limiting funding for emerging technologies — there continues to be a hostile political backdrop. Investment managers who remain full-throated in their embrace of green, sustainable or ESG (environmental, social and governance) strategies regularly have to defend themselves against US Republicans enraged by what they see as a “woke,” anti-capitalist conspiracy.
Then there’s the other, more consequential political risk. Most of the hedge fund managers Bloomberg interviewed pointed to an increasingly hostile geopolitical environment, with obstacles such as tariff wars leaving them unwilling to invest in classic green bets such as EVs or solar power. In fact, with much of the supply chain for green technology now depending on China, the risk of a full-blown trade war targeting its products has become a direct threat to the financial appeal of clean energy, they said.
“Geopolitics is the key reason why the energy transition theme isn’t working out,” says Kerry Goh, CEO of Kamet Capital Partners Pte., which oversees more than $1 billion from its base in Singapore. “China commands a dominant position in most of these sectors, and tariffs are spoiling the investment case.”
And if Donald Trump regains the White House after November’s election, ESG investors would likely need to brace for a whole new level of pain. Trump has already aired plans to rescind unspent climate funding, prioritize lower gasoline prices and raise duties on Chinese-made goods to 60% or more.
The tariff war targeting China will feed inflation in Europe and the US, undermining the appeal of everything from solar cells to EVs, Goh said. Until the tide of protectionism recedes, it’s hard to make a broad investment case for the transition, he said.
A failure to persuade money managers of the financial merits of climate investments is likely to complicate efforts to accelerate spending on a greener global economy. To achieve net-zero emissions by 2050, the world would need to deploy $215 trillion to deliver a fully decarbonized energy system, BloombergNEF said in its latest annual New Energy Outlook report.
On a sector-by-sector basis, Bloomberg has analyzed bets placed by hedge funds with managed assets ranging from $50 million to $50 billion to offer a picture of how the wider industry views the prospects of key green sectors. There are a few bright spots, such as wind power and grids. But overall, the data point to a reluctance among hedge funds to go green.