The Coming Green Bubble

Although I was aware of the trend towards E.S.G investing, I didn't understand the true magnitude of it until the recent action in Tesla. Lots of people tell me that Tesla went up on its own and that E.S.G. investing had nothing to do with the wonderful investment opportunity offered by this preeminent alternative energy/car company. Yeah, ok... 

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I will concede that recently Musk has been delivering on the operations front. The stock definitely needed to be re-rated higher on this improvement late last year. But if you are telling me that without the E.S.G. investing trend this stock would have run from $300 to $975 in a little over two months, then we don't have much more to discuss. I contend that E.S.G. was a crucial part of this rise. Tesla has become the go-to alternative energy car company. How can a portfolio manager run an E.S.G mandate without owning Tesla?  The answer is they can't, which is why Tesla has run faster than Winona Ryder outside a Saks Fifth Avenue department store.

But what exactly is E.S.G. investing?  Instead of trying to describe this recent development that's caught the investment world by storm, I will lean on this great interview in Barrons titled, "Investors are Flocking to Sustainable Investments. Here's why."

Alex Eule: Can you define ESG for us?
Leslie Norton: Right, ESG stands for environmental, social, and governance principles. They now are critical to what we think of as sustainable investing. It used to be socially responsible investing. That was the previous iteration, and that was just about screens, about divesting from Sudan or South Africa. Or various other countries that people didn’t find socially acceptable because of their social practices. So now we are in this ESG iteration, where everything is looked at through the lens of risk. And in the future, it is probably going to evolve to impact, where investors are going to try to measure the social impact of their corporations in a variety of sectors.
Alex Eule: And I just want to point out, then the E, the S, and the G, governance, and sort of the makeup of a company’s board really has as much of a factor in these ratings then as how you’re affecting the climate, as a company.
Leslie Norton: Right, because the governance and the board actually tells the company what to do in terms of their practices. And they follow up to make sure that a company has done what the board has asked.
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