Investors Want Energy Transition, Not Pure-Play "Green" Companies

ESG investors are more focused on companies transitioning to clean energy than they are on pure-play green companies, according to the results of a survey conducted by Jefferies LLC. While 56% of surveyed investors are interested in stories about firms with large carbon footprints shifting over to renewable energy — like Ford Motor Co. looking to increase production of electric vehicles, or ExxonMobil planning to be net-zero by 2050 — only 6% are interested in pure-play green stories.

“Investors are less interested in pure play green stories of today,” writes Aniket Shah, global head of environmental, social, and governance research at Jefferies in the survey. Shah later adds: “With the expansion in the multiples of many equities considered dark green in previous years, investors are increasingly interested in transition stories.”

This suggests that more capital may be going into “greening” companies — such as oil, mining, steel, and other carbon-intensive sectors — as opposed to pure-plays.

The survey, which was conducted among roughly 60 institutional investors throughout January, also reveals that renewable energy investments are at the forefront of investors’ minds. With an expected increase in the market penetration of wind and solar energy, investors view these technologies as the most promising areas for investment over the next 12 months. Combined with energy storage, investors appear to be aware of some of the challenges posed by renewable energy sources.

Despite not having much commercial scalability, carbon capture and storage and direct air capture technologies continue to capture some investor interest. Nuclear power also features prominently as a possible low carbon investment opportunity.

Climate remains the number one focus of ESG Investors globally, according to survey respondents. Despite human capital gaining traction in recent years, ESG-minded investors remain focused on engaging on climate and net-zero with investee companies. Shah writes that Jefferies expects investors to increasingly scrutinize the credibility of companies’ transition plans.

For more news, information, and strategy, visit the ESG Channel.