Other money managers are more wary following the run up in prices.
“As ESG demand grows, investors may need to be more mindful of the potential clustering risk around the ESG trade,” said Guillaume Mascotto, head of ESG and investment stewardship at American Century Investments in New York. “While these ESG-friendly assets have significant potential in the longer term, we believe caution is warranted.”
The Newton Sustainable Global Equity Fund favors companies that have a clear plan to transition their businesses to accommodate the changing world, even if they are not necessarily at the vanguard of ESG.
These may include utilities that are trying to get rid of coal assets and shift to renewables, as well as air-conditioning companies that are developing technologies to produce more efficient units, said Yuko Takano, who manages the fund in London.
“We want to dig a little bit deeper into the less obvious areas where there is some element of technology innovation going that is not necessarily a focal area for most investors but we find to be quite interesting,” Takano said.
Green Bonds
The surge in ESG assets is not just moving stocks, it is also being felt in fixed income.
Issuance of so-called green bonds, which raise funds for projects that deliver environmental benefits, jumped to $111 billion in the first quarter, nearly three times a year earlier, according to Calvert Research and Management in Washington.
“The pandemic has heightened the awareness of environmental, social and governance factors as drivers of social responsibility and impact, as well as financial performance—turning 2020 into a pivotal year for responsible investing, especially in fixed income,” Brian S. Ellis, fixed-income portfolio manager and Henry Mason, ESG research associate, wrote in a note.
In the first quarter, Calvert invested in a U.S. electric-power producer whose parent company is the first U.S. utility to commit to being carbon neutral by 2050. It also bought a holding in a semiconductor producer whose parent has become the first South Korean company to commit to transitioning to 100% renewable energy.
—With assistance from Matthew Burgess.
This article was provided by Bloomberg News.