Stocks of companies in the green energy sector have fallen to levels last seen five years ago, before the global ESG (Environmental, Social and Governance) investment wave pushed this market segment to record heights. Uncertainty regarding political support for the energy transition, which involves a gradual phasing out of fossil fuels, further pressures the market and increases volatility, writes FT.
S&P Global Clean Energy Transition Index, one of the key performance indicators for leading companies in the clean energy sector, has recorded a 16 percent decline over the past 12 months. Many investors expected a recovery at the end of last year, especially after the stabilization or decline of interest rates and the rise in electricity prices. However, U.S. President Donald Trump’s decision to freeze funding for green projects under the Inflation Reduction Act and his withdrawal of the U.S. from the Paris Climate Agreement further worsened market sentiment. At the same time, political pressure against measures aimed at reducing fossil fuel use is rising in Europe, which is also reflected in stock indices.
In comparison, S&P Global BMI Energy (Sector) Index, which includes stocks from the oil and gas sector, has recorded a decline of only 5 percent during the same period, with some companies in this segment even achieving gains. On the other hand, the S&P Aerospace and Defense Select Industry Index, which tracks weapons manufacturers and the defense industry, has risen by 14 percent, driven by increased military spending in the European Union and the U.S.
Pressure from Interest Rates and Uncertainty
Experts point out that one of the key factors stifling the clean energy sector is the sensitivity of projects to high upfront costs and financing costs, especially in an environment of elevated interest rates.
– The pessimism currently prevailing in the decarbonization sector is exceptional and does not reflect the actual business results of companies. Companies in this sector are experiencing strong growth and stable returns, yet their stocks are lagging – emphasizes Deirdre Cooper, head of sustainable investments at investment firm Ninety One.
Analysts at S&P Dow Jones Indices add that the decline in the sector index conceals significant differences in the performance of individual companies. For example, shares of Danish wind turbine manufacturer Vestas have plummeted by more than 44 percent in the past year, while shares of Spanish Iberdrola, one of the largest European developers of renewable energy and electricity infrastructure, have risen by nearly 30 percent. However, there is also the Swedish battery manufacturer Northvolt, which declared bankruptcy, thus burying the EU’s hopes for its own large EV battery factory.
