· 9 min read
Markets work on cycles; investors tend to be illogical and follow each other. Thanks to Sam Bankman-Fried, investors have realised that crypto is not money. Thanks to the collapse of British Volt, which 12 months ago was touting a £2.6bn investment, we know the default of the ESG $41tn market is underway.
This is what economic and investment cycles are about; we are at the end of phase one, which will clean out a good chunk of the greenwashing grifters. The hubris of capital will continue to try and manipulate climate science and ecology; this year, their “green” portfolios will take a hammering. To win in this market, you need to respect the science and figure out what side of the transition you want to be on and cut through the spin.
Retail green investors take a knock.
The short-term could be better for retail investors, who were already down by 25% from misselling of article 8 and 9 funds valued at $4.18 tn. Significant knock and reduction of public faith in the climate transition. The long-term good for the science community, the real innovators and investors who base investment on fundamentals and capital returns and use climate science to indicate the long-term value will prevail. The burning of the greenwashing grifters in this cycle eliminates the short flippers with no interest in value, returns and climate transition.
Where are we now
Greenwashing grifters are not new. All markets at the start or end of the cycle attract parasites and voodoo-type characters. This is a bubble market like a dot com boom, a Dutch tulip market, and it is essential to get on the right side of the transition. While climate and biodiversity loss are real, and we need to respond urgently. Transition or successful response to climate can only be achieved with a significant shift in the current market understanding of the economic transition driven by climate. The simple fact is that science and capital are two different things. They influence each other but never touch; they interact but maintain different volumes. One is alchemy and chance the other is based on fact and reality.
Where are the climate scientists
Unfortunately, arrogant-bloated P.E. firms and ridiculous V.C. bets have dominated the last five years of the climate debate. The three letters ‘E. S. G’ rapidly became an indicator of significant fantastic-sounding initiatives; it didn’t matter as long as it sounded important, confusing, and costly.
It’s interesting watching the name call of ‘contributors’ to natural capital conferences and COP climate debates. All credible climate scientists focused on system change have been squeezed out of the discussion.
Attending these conferences is dull as all the prominent consultants and corporates have a shallow understanding of science and context and discuss ecology in accountancy terms. There is no debate because they have all paid so much sponsorship to attend. Still, watching the endless discussions about frameworks and disclosure is interesting as it is significant, while it needs to be more effective. That is, if the intention is to drive innovation and capital to address climate and biodiversity loss; if not, it’s an effective delay to addressing the real issues.
Never trust PR-driven capitalism
British Volt was founded in 2020, once valued at £700m, promising a future investment of £2.6bn and 3000 jobs. This week it crashed with no product, revenue, identifiable I.P., a bunch of MOUs and announcements about future things and a 118-page website, 100 of which are all ESG. Apart from sucking up £100m of public money, the board’s most considerable success was the P.R. churn and the number of releases on its website. In the old days, one would promote something they had done or achieved, but that’s all changed. It’s all about what might or might not, and the story changes again. Exhausting.
Distraction from underlying fundamentals
The reality is that pure P.R., hype, and spin drive bubble markets in crypto and ESG. These grifter tools diverge from the underlying or lack of investment case. In truth, it is the playbook of 80% of the current significant ESG investments. When looked at cold and after the event, it is ludicrous. It’s as mad as someone flogging a trust barometer talking about purpose and meaning and addressing climate as a burning concern at Davos. Trust cannot and will not be this fella’s legacy. He’s another greenwashing grifter. His revenue has come from the climate denial section of the capital markets and the fossil fuel industry, which is the baseline driver for all climate and biodiversity loss. In balance, having a client who knew about the climate crisis in the 1970s and then started denial must provide some significant insight. Good for him; maybe outright delusion, hubris, and Orwellian double-speak are the way through the polycrisis. (Which I note is the new Davos buzzword, which will generate a whole slew of analysts’ reports and nonsense)
This is a cycle
We see the same thing again and again in carbon capture and storage, clean tech, hydrogen etc. — hard-driven P.R., buzz words but no investment case, proof of concept or science-based facts. This is not unique. Only eight months ago, Sam Blankman was sitting in shorts in the Bahamas, selling the crypto illusion. Looking at the big announcements by wall street and P.E. firms is interesting. Dig deep. There is not much substance. The technologies are not based on context materiality or system change; if anything, they are cut from a 12-year-old kids’ school science book. Yes, there might be some merit in the idea, but the R&D curve is longer than the curve for climate action and any actual ROI. (The IRR is always fantastical). Technologies do not develop or respond to the bonus cycle or the fund managers. Science is unpredictable, iterative and takes time; it can’t be worked out on junior analysts’ excel sheets to boost a fund’s AUM or flog more sustainable pensions.
We need scientists, not titles
At some stage, British Volt pulled the old trick of putting a few titled people who did something in finance, industry and commerce and put them on the board. This was the cart before the horse, as the company had no product. The focus was to scale lithium batteries at pace; this is physics, challenging stuff, and takes time, R&D, and patience. So why not pay top university scientists to dig into the problem and develop the product before the marketing and the spin? (On the plus side, after all that P.R. and Greenwashing, those board members are well prepared to join that fella at Davos with his trust barometers)
ESG is not an investment thesis
Over the last 12 months, various fund managers and investment banks have called me asking if British Volt is a good “ESG investment”, a stupid question. The real question is how long and what is the potential of commercialising lithium batteries and who will buy them if achieved. The other is the real ecological cost; these technologies are not an elixir. Nevertheless, it reminded me of when I was in the room when the fella from “we work” came in with a slide deck of office buildings trying to say it was a technology company. He got away with it, more because of the embarrassment of the Soft Bank Group, but he did get away with it.
There is no such thing as ESG
Unfortunately, there is no such thing as ESG; If you’re on the right in the U.S., it’s about anti …. well, everything and hard even to decipher. If you’re an accountant, it is trying to put a capital figure on something you think is a risk, but you need help understanding. If you are in an ESG rating agency, it’s about scrapping data from a company website and blackmailing clients to pay you for something they don’t even understand.
Decouple science and capital
The markets need to stop subverting climate science for their gain. Some companies and technologies may or may not reduce climate, carbon and biodiversity loss, and others will not. Likewise, some companies may or may not hold their capital value as climate and biodiversity factors continue to rocket and those that will not. These are two very different valuation tools, risk lens and investment decisions.
What happens next
In the short term, we will see a significant default and collapse of many of these ESG unicorns. They will run out of money; the crash will disappear. One must feel sorry for the employees and the investors who fell for the dream. Like the tech sector, they put their lives in the hands of this latest wave of chancers, But the market and individuals are getting smarter.
Now it gets real
Unfortunately, this does not help the climate, fires, and biodiversity loss, and my climate science colleagues tell me in absolute terms that the planet has started cascading past 2.7C. This fact was verified by one of the most anti-science, climate-denying papers in the UK and the world. The positive is that in any market is that when the greenwashing grifters with their trust barometers get cleaned out, the wise, grown-up, more educated investors join the market. I am starting to witness this trend which makes sense.
Trust in science will drive investor trust
Investing is about trust, which trust barometers will never buy. Investors who want to invest in a science technology that will fix climate want to talk to scientists and ecologists. Not the fast-talking street kids flipping deals in time for bonus season. Why would someone who is smart join and take a nonsensical market based on ESG ratings which have contaminated any valuation? Why would a sensible investor back a £2m bet in a Mexican forest that may or may not exist?
ESG ratings are for companies on the point of demise
Why would a logical person invest capital in a company that has bought an ESG rating for 50,000 dollars and masquerades and doing something good or green? While the reality is that the asset is in sunset mode, and using 152-page disclosure documents with windmills and a myriad of important-looking numbers will never hide the reality that it is a bust. Given its time and where we are in the climate transition, these companies are too large to change and too slow to adapt to their supply chains being burned and destroyed by climate fires. This is all that ESG ratings are. They are not a measure of value; they are a measure of demise, and the asset is already in demise. It takes a lot of those trust barometers to flog these sorts of assets, and the fella investing in them needs to be in the trust barometer echo chamber, or he’ll spot the con.
Stick to the fundamentals to make returns
To make returns in this market, you must understand that ESG is not an investment thesis. Instead, climate science needs to be the primary valuation tool. System change is the critical asset identifier. Then stick to the fundamentals. Companies only survive and provide investor returns if the investment fundamentals are in place. Then, they produce products that will sell in the market.
P.S. Never trust a grifter with a trust barometer; trustworthy people don’t need to advertise or promote their trust.
We’ll get there in the end.
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
