Home ›› 21 Sep 2021 ›› World Biz
The central bank to the world’s central banks, the Bank for International Settlements, has warned of the growing risk of a price bubble in environmentally friendly-focused asset markets.
Increasing urgency to limit global warming and tackle other issues such as racial and social inequality has seen Environmental, Social and Governance (ESG) investing explode in popularity in recent years. Some estimates indicate ESG-focused assets have soared to a value of $35 trillion and now account for more than a third of all assets professionally managed by banks and investment funds.
A narrower definition including only exchange-traded funds (ETFs) and mutual funds with ESG or socially responsible investment (SRI) mandates points to even faster, tenfold growth, to approximately $2 trillion. This is evidenced in assets such as clean energy and electric car stocks and green bonds, which have soared in recent years.
“There are signs that ESG assets’ valuations may be stretched,” the BIS, which holds regular meetings for the world’s central banks, said as part of its latest quarterly report.
Claudio Borio, head of its monetary and economic department, referred to it as the “green bubble” risk, highlighting how the surge in ETFs and mutual funds was comparable to parts of the mortgage backed security market in the runup to the global financial crisis.
“You could have too much, too quickly of a good thing,” Borio said. “We know valuations are rather rich”.
Prices have eased somewhat this year but markets are awash with examples of the moves. Electric car doyen Tesla for example raced up 750% in last year’s frenzy and is up 16,000% over the last decade. Borio said authorities needed to be aware of the risk such huge shifts in investor demand can have, also drawing comparisons to the internet stock boom of the early 2000s and the railroad boom in the 1800s.
