As the enthusiasm for sustainable investments has created a tectonic shift driven by a massive change in consumer demand, some analysts warn that investors are pumping cash into anything that looks “green” sending valuations into the stratosphere and further triggering fears of a bubble.
Thematic strong green equities like wind energy or solar energy and electric cars may have reached levels, in which pricing exceed fundamental values. So, has sustainable assets become unsustainable when it comes to valuation?
To shed light on these issues, we have invited Joachim Klement, Investment Strategist at Liberum Capital, Thomas Thygesen, Head of Equity Strategy and Head of Research, Climate and Sustainable Finance and, Katrine Dige Ovesen, Corporate Finance Analyst, both from SEB, and Ole Søeberg, Chairman of The Danish Shareholders Association, to discuss short term and long term ESG valuation and touch upon topics like the climate crisis as a capital replacement problem, transition arbitrage, address the potential valuation gap between old and new assets, valuation impact based on taxonomy alignment, risk taking versus green financing and investor trends in ESG investing. After presenting their views, we invite to a panel debate moderated by Lasse Ladefoged, Danish Financial Newspaper, Børsen.
Some of the questions we seek to explore, are: What is the reason for these huge revaluations – is it a real green bubble, driven by large capital inflows in ETFs, low interest rates and institutional investors’ search for ESG compliant equities? Or are the price increases based on fundamentally healthy future business prospects? For how long should we expect many of these, perhaps overpriced assets, to be trading at frothy price-to-earnings multiples? When Scope 3 exposures are introduced in disclosure requirements and the analysis includes the whole supply chain, what happens to valuations if major changes in business models across sectors occur? What about regional valuation discrepancies due inherited business and political practices? What should investors expect, if ESG funds underperform because investors may move away from overvalued stocks? Will the “green element” prevail compared to expected returns in case of allocation? And what factors should be in place, to sustain current and future valuations?
