1 00:00:03,120 --> 00:00:10,360 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. A few years ago, 2 00:00:10,480 --> 00:00:13,640 Speaker 1: it seemed like everyone was betting big on the future 3 00:00:13,680 --> 00:00:15,760 Speaker 1: of the so called green economy. 4 00:00:16,160 --> 00:00:19,800 Speaker 2: So there were thousands of these ESG funds being launched, 5 00:00:20,160 --> 00:00:25,200 Speaker 2: and we had sectors like solar win EV's battery technology 6 00:00:25,400 --> 00:00:29,600 Speaker 2: doing very well. Investors were talking about these themes with 7 00:00:29,720 --> 00:00:30,880 Speaker 2: a lot of enthusiasm. 8 00:00:31,240 --> 00:00:35,840 Speaker 1: Bloomberg Cheryl Lee covers ESG investing that's shorthand for investments 9 00:00:35,840 --> 00:00:40,479 Speaker 1: that have to meet certain standards environmental, social, and governance goals. 10 00:00:41,280 --> 00:00:43,680 Speaker 1: Back in twenty twenty one, Cheryl says some of the 11 00:00:43,720 --> 00:00:47,160 Speaker 1: biggest names in finance were all in on ESG. 12 00:00:47,640 --> 00:00:50,080 Speaker 2: Larry Fink, the head of black Rock, which is the 13 00:00:50,120 --> 00:00:54,880 Speaker 2: world's biggest SSM manager, was really promoting those three letters. 14 00:00:55,320 --> 00:00:57,800 Speaker 1: Think wrote about it in twenty twenty one in his 15 00:00:57,920 --> 00:01:01,600 Speaker 1: annual letter to CEOs, a document that's widely read on 16 00:01:01,640 --> 00:01:04,880 Speaker 1: Wall Street, and he marveled at how much momentum there 17 00:01:05,000 --> 00:01:08,640 Speaker 1: was behind ESG investing in an appearance on Bloomberg TV. 18 00:01:08,959 --> 00:01:11,920 Speaker 3: In my forty four years of doing this, I've never 19 00:01:12,080 --> 00:01:16,560 Speaker 3: seen the speed in which this narrative is evolving and changing. 20 00:01:16,880 --> 00:01:20,240 Speaker 3: I believe there will be a future, that all investments 21 00:01:20,240 --> 00:01:22,360 Speaker 3: are going to be looked through sustainability. 22 00:01:22,640 --> 00:01:25,480 Speaker 2: People thought that this was the start of the transition 23 00:01:25,640 --> 00:01:28,399 Speaker 2: away from fossil fuels and there were going to be 24 00:01:28,560 --> 00:01:32,520 Speaker 2: a lot of returns from companies leading the clean energy revolution. 25 00:01:34,360 --> 00:01:38,479 Speaker 1: But Cheryl says the landscape has changed along with investor appetite. 26 00:01:38,760 --> 00:01:42,040 Speaker 1: In twenty twenty three, Larry Fink said he'd stopped using 27 00:01:42,080 --> 00:01:45,480 Speaker 1: the term ESG because it's been, as he put it, weaponized. 28 00:01:46,120 --> 00:01:49,120 Speaker 1: It was a stark shift that underscored just how quickly 29 00:01:49,160 --> 00:01:51,680 Speaker 1: the world of finance changed its tune on one of 30 00:01:51,720 --> 00:01:59,160 Speaker 1: the biggest investment trends in recent history. I'm David Gera, 31 00:01:59,360 --> 00:02:01,920 Speaker 1: and this is the big take from Bloomberg News today. 32 00:02:01,960 --> 00:02:04,200 Speaker 1: On the show, why investors that had bet on the 33 00:02:04,240 --> 00:02:11,680 Speaker 1: future of the green economy are now betting against it. 34 00:02:11,800 --> 00:02:15,639 Speaker 1: Bloomberg's Cheryl Lee analyze positions. More than five hundred hedge 35 00:02:15,639 --> 00:02:18,640 Speaker 1: funds have taken on green energy, and she found that 36 00:02:18,720 --> 00:02:21,440 Speaker 1: more of those funds are now going short on ESG 37 00:02:21,720 --> 00:02:24,079 Speaker 1: than are going long. When we talk about a hedge 38 00:02:24,120 --> 00:02:26,919 Speaker 1: fund going short, what does that mean exactly? 39 00:02:27,240 --> 00:02:29,240 Speaker 2: I think we all know that if you take a 40 00:02:29,280 --> 00:02:31,720 Speaker 2: long bet on a stock that means you're buying the 41 00:02:31,840 --> 00:02:34,799 Speaker 2: shares with the expectation that the price will rise over 42 00:02:34,840 --> 00:02:37,679 Speaker 2: time and you'll make a profit. And when it comes 43 00:02:37,720 --> 00:02:40,120 Speaker 2: to taking a shot bet, and you're hoping that the 44 00:02:40,160 --> 00:02:43,680 Speaker 2: stock's price will decrease. So basically what a shot bet 45 00:02:43,720 --> 00:02:46,120 Speaker 2: is is a bet that the stock is going to 46 00:02:46,200 --> 00:02:47,279 Speaker 2: fall in value. 47 00:02:47,520 --> 00:02:50,680 Speaker 1: I wanted to ask you how transparent hedge funds are, 48 00:02:50,840 --> 00:02:52,760 Speaker 1: or how transparent hedge funds have to be when it 49 00:02:52,800 --> 00:02:55,520 Speaker 1: comes to what positions they're taking. Is it easy to 50 00:02:55,560 --> 00:02:57,839 Speaker 1: find this kind of information about what kind of bets 51 00:02:57,880 --> 00:02:58,320 Speaker 1: they're making. 52 00:02:58,639 --> 00:03:03,320 Speaker 2: It's really difficult. The challenge is really having the data 53 00:03:03,400 --> 00:03:06,639 Speaker 2: from hedge funds. So the five trillion dollar hedge fund 54 00:03:06,720 --> 00:03:10,760 Speaker 2: industry is subject to less stringent disclosure rules than many 55 00:03:10,880 --> 00:03:15,560 Speaker 2: other types of asset managers, so it's not easy getting 56 00:03:15,639 --> 00:03:18,720 Speaker 2: that data at all, and shot beds are even harder 57 00:03:18,760 --> 00:03:19,120 Speaker 2: to get. 58 00:03:20,040 --> 00:03:22,320 Speaker 1: But Cheryl and her colleagues found a way to peak 59 00:03:22,440 --> 00:03:25,280 Speaker 1: behind the curtain. They looked at data collected by a 60 00:03:25,280 --> 00:03:29,120 Speaker 1: company called hazel Tree Data. Hedge funds had shared anonymously 61 00:03:29,400 --> 00:03:31,040 Speaker 1: about positions they'd taken. 62 00:03:31,040 --> 00:03:34,359 Speaker 2: So using hazel Trees data, we looked into like four 63 00:03:34,440 --> 00:03:38,640 Speaker 2: hundred stocks across the energy transition space to understand how 64 00:03:38,680 --> 00:03:42,760 Speaker 2: this extremely money minded group of investors was betting on 65 00:03:42,880 --> 00:03:44,560 Speaker 2: specific stocks and sectors. 66 00:03:44,920 --> 00:03:48,000 Speaker 1: Cheryl couldn't see what individual hedge funds were doing, but 67 00:03:48,200 --> 00:03:51,520 Speaker 1: she and her colleagues were able to spot trends, so we. 68 00:03:51,480 --> 00:03:55,120 Speaker 2: Would know, for example, five percent of all these hedge 69 00:03:55,120 --> 00:03:59,800 Speaker 2: funds net long in a specific stock, and maybe it 70 00:04:00,080 --> 00:04:03,240 Speaker 2: person a net shot in debt stop. And then we 71 00:04:03,280 --> 00:04:08,320 Speaker 2: also averaged it out across companies to get a sector average. 72 00:04:08,880 --> 00:04:12,040 Speaker 1: And that information gave Cheryl a pretty clear sense of 73 00:04:12,080 --> 00:04:14,560 Speaker 1: how the hedge fund industry is thinking about the future 74 00:04:14,640 --> 00:04:18,200 Speaker 1: of the clean energy transition of investments in companies that 75 00:04:18,240 --> 00:04:21,680 Speaker 1: are part of the green economy. On the whole, Cheryl 76 00:04:21,720 --> 00:04:24,280 Speaker 1: and her team found that more hedge funds were short 77 00:04:24,320 --> 00:04:28,839 Speaker 1: green stocks than long. In other words, the emerging consensus 78 00:04:28,880 --> 00:04:31,960 Speaker 1: seems to be that clean energy investments, which have fallen 79 00:04:32,000 --> 00:04:35,479 Speaker 1: in value for years now, are expected to fall even more. 80 00:04:36,520 --> 00:04:38,200 Speaker 1: But something else jumped out at her. 81 00:04:38,680 --> 00:04:42,440 Speaker 2: You had more funds long fossil fuels than were shotting 82 00:04:42,520 --> 00:04:43,920 Speaker 2: oil and gas and cool. 83 00:04:44,200 --> 00:04:46,320 Speaker 1: I think that'll surprise a lot of people given what 84 00:04:46,360 --> 00:04:48,760 Speaker 1: we've talked about, that there was this moment of such 85 00:04:48,880 --> 00:04:53,599 Speaker 1: enthusiasm for ESG for a kind of transition to a 86 00:04:53,600 --> 00:04:56,640 Speaker 1: green economy. Why is that the case. What did hedgehund 87 00:04:56,640 --> 00:04:58,760 Speaker 1: managers say to you about why they are long on 88 00:04:58,880 --> 00:04:59,479 Speaker 1: fossil fuels? 89 00:04:59,480 --> 00:05:03,440 Speaker 2: In particular, the hedgehund managers that we interviewed said that 90 00:05:03,480 --> 00:05:07,280 Speaker 2: they were buying fossil fuels because they feel like it's 91 00:05:07,320 --> 00:05:11,440 Speaker 2: a needed, reliable source of energy as the world transitions. 92 00:05:11,800 --> 00:05:14,240 Speaker 1: But there were other factors that led to bigger bets 93 00:05:14,240 --> 00:05:18,479 Speaker 1: on fossil fuels. First and foremost conflict in Europe, which 94 00:05:18,520 --> 00:05:20,919 Speaker 1: sent shock waves through the global energy market. 95 00:05:21,200 --> 00:05:23,599 Speaker 2: We had a Russia Ukraine war, and then there was 96 00:05:23,600 --> 00:05:26,960 Speaker 2: a boon for fossil fuel stocks instead because it was 97 00:05:27,000 --> 00:05:30,560 Speaker 2: worsening supply constraints. You had Russia, which is one of 98 00:05:30,560 --> 00:05:34,599 Speaker 2: the world's largest oil and gas producers, and the conflict 99 00:05:34,680 --> 00:05:38,000 Speaker 2: led to those sanctions on Russian energy exports. So they 100 00:05:38,080 --> 00:05:41,800 Speaker 2: created a lot of uncertainty and disruptions, and a lot 101 00:05:41,880 --> 00:05:44,360 Speaker 2: of countries were worried about where they were going to 102 00:05:44,480 --> 00:05:48,159 Speaker 2: get a secure source of energy, and that led to 103 00:05:48,640 --> 00:05:50,279 Speaker 2: a boon for fossil fuels. 104 00:05:51,520 --> 00:05:54,839 Speaker 1: That explains why hedge funds went long on fossil fuels. 105 00:05:55,040 --> 00:05:57,599 Speaker 1: But why are they betting against the green economy and 106 00:05:57,680 --> 00:06:00,720 Speaker 1: what does that mean for investors and the future the planet? 107 00:06:01,240 --> 00:06:11,680 Speaker 1: That's next Bloomberg. Cheryl Lee and her team did an 108 00:06:11,720 --> 00:06:14,640 Speaker 1: extensive analysis of data for more than five hundred hedge 109 00:06:14,640 --> 00:06:17,680 Speaker 1: funds and discovered that more of those funds are now 110 00:06:17,760 --> 00:06:20,840 Speaker 1: betting against the future of the green economy than are 111 00:06:20,880 --> 00:06:23,360 Speaker 1: betting on it. I know you've talked to hedge fund managers. 112 00:06:23,400 --> 00:06:25,320 Speaker 1: What did they tell you about why this shift is happening, 113 00:06:25,320 --> 00:06:27,520 Speaker 1: Why they're shorting greenstocks? 114 00:06:28,160 --> 00:06:33,839 Speaker 2: So they're shotting greenstocks for a couple of reasons. Performance 115 00:06:33,839 --> 00:06:36,960 Speaker 2: hasn't been very good, so momentum has been negative for 116 00:06:37,080 --> 00:06:40,240 Speaker 2: green stocks for the past couple of years. We had 117 00:06:40,520 --> 00:06:43,440 Speaker 2: the unwinding of COVID traits and higher interest rates and 118 00:06:43,520 --> 00:06:47,279 Speaker 2: supply chain issues, so many investors left the sector. 119 00:06:47,760 --> 00:06:50,479 Speaker 1: And Cheryl says that even though the Federal Reserve and 120 00:06:50,640 --> 00:06:53,839 Speaker 1: other central banks have begun to lower interest rates, the 121 00:06:53,920 --> 00:06:58,120 Speaker 1: economic environment is still challenging for these companies, including the 122 00:06:58,120 --> 00:07:01,400 Speaker 1: San Francisco based solar companies un Run and Tesla. 123 00:07:01,800 --> 00:07:06,120 Speaker 2: We have a tough macroeconomic backdrop. Higher interest rates have 124 00:07:06,360 --> 00:07:10,720 Speaker 2: upended capital intensive projects like offshore wind farms and limited 125 00:07:10,720 --> 00:07:14,960 Speaker 2: funding for emerging technologies, and we are only now starting 126 00:07:15,000 --> 00:07:17,520 Speaker 2: to see rates for but Cheryl says. 127 00:07:17,520 --> 00:07:21,680 Speaker 1: Hedge fund managers are also worried about politics, and especially 128 00:07:21,920 --> 00:07:24,200 Speaker 1: about the upcoming election in the United States. 129 00:07:24,520 --> 00:07:28,600 Speaker 2: So investment managers who are very much pro ESG they 130 00:07:28,640 --> 00:07:33,520 Speaker 2: have to defend themselves against US Republicans who call ESG 131 00:07:33,720 --> 00:07:38,400 Speaker 2: an anti capitalist conspiracy. And the most important factor of all, 132 00:07:38,480 --> 00:07:41,400 Speaker 2: according through all these hedge fund managers that we interviewed, 133 00:07:41,800 --> 00:07:46,920 Speaker 2: is geopolitical risks between US and China. So they feel 134 00:07:47,040 --> 00:07:51,080 Speaker 2: obstacles such as tariff wars between the two countries will 135 00:07:51,160 --> 00:07:55,040 Speaker 2: directly hit green products like ebs and solar, So that's 136 00:07:55,080 --> 00:07:58,760 Speaker 2: why they're unwilling to invest in these classic green beds. 137 00:07:59,400 --> 00:08:03,040 Speaker 2: The risk of a full blown trade war targeting China's 138 00:08:03,080 --> 00:08:07,119 Speaker 2: products is a direct thread to the appeal of clean 139 00:08:07,280 --> 00:08:08,160 Speaker 2: energy stocks. 140 00:08:08,400 --> 00:08:11,400 Speaker 1: There is so much rhetoric from the Republican candidate about 141 00:08:11,400 --> 00:08:13,080 Speaker 1: the kind of tariffs that he would impose and what 142 00:08:13,080 --> 00:08:16,120 Speaker 1: that might do to the trade relationship with China. What 143 00:08:16,160 --> 00:08:18,760 Speaker 1: did these hedgpoon managers say just about the prospect of 144 00:08:18,800 --> 00:08:20,760 Speaker 1: what would happen if those tariffs were to be put 145 00:08:20,760 --> 00:08:22,920 Speaker 1: in place, so those kind of extreme punitive tariffs. 146 00:08:23,120 --> 00:08:27,120 Speaker 2: So if those terrants are put in place, they see 147 00:08:27,280 --> 00:08:31,480 Speaker 2: greater fallout because what that would result in is higher 148 00:08:31,520 --> 00:08:35,439 Speaker 2: prices and inflation across the bot so that would hurt 149 00:08:35,520 --> 00:08:39,720 Speaker 2: these green sectors even more so. If Donald Trump regains 150 00:08:39,760 --> 00:08:43,480 Speaker 2: the White House, then he has already had his plans 151 00:08:43,520 --> 00:08:47,480 Speaker 2: to take back and spend climate funding and raise duties 152 00:08:47,520 --> 00:08:51,319 Speaker 2: on Chinese made goods to sixty percent or more. So 153 00:08:51,920 --> 00:08:55,559 Speaker 2: the outcome of the US elections is also something that 154 00:08:55,679 --> 00:08:57,880 Speaker 2: the hedge fire managers are watching very closely. 155 00:08:58,480 --> 00:09:00,440 Speaker 1: What kind of a difference would it make I Kamala 156 00:09:00,440 --> 00:09:01,839 Speaker 1: Harris were to be elected. 157 00:09:01,679 --> 00:09:07,040 Speaker 2: When they contrasted Kamala Harris versus Donald Trump presidency, they 158 00:09:07,080 --> 00:09:11,760 Speaker 2: feel Kamala Harris would be more favorable towards the green sectors, 159 00:09:12,360 --> 00:09:16,640 Speaker 2: so that none of them have expressed views as to 160 00:09:16,920 --> 00:09:21,640 Speaker 2: who they think will likely win the election. So that's 161 00:09:21,640 --> 00:09:24,800 Speaker 2: also one of the reasons why the hedge funds are 162 00:09:24,840 --> 00:09:28,400 Speaker 2: staying out of green sectors for now, because you can 163 00:09:28,520 --> 00:09:33,240 Speaker 2: price risk, but it's really difficult to price uncertainty, and 164 00:09:33,760 --> 00:09:36,439 Speaker 2: so over the next few months, once the election is done, 165 00:09:36,480 --> 00:09:40,079 Speaker 2: there will be more clarity on how supportive policies might 166 00:09:40,120 --> 00:09:44,040 Speaker 2: be around clean energy or evs, for example, and some 167 00:09:44,160 --> 00:09:47,160 Speaker 2: of the HEDGEMA managers said that that's when they would 168 00:09:47,200 --> 00:09:49,760 Speaker 2: consider getting into the market again. 169 00:09:51,000 --> 00:09:53,520 Speaker 1: I asked Eryl what conclusions she and her team can 170 00:09:53,600 --> 00:09:56,400 Speaker 1: draw from their analysis, what the data tell them about 171 00:09:56,400 --> 00:10:00,959 Speaker 1: the overall appetite for ESG investing, and what they don't. 172 00:10:01,280 --> 00:10:03,480 Speaker 2: I think it's a window to a moment in time. 173 00:10:04,080 --> 00:10:07,040 Speaker 2: What one part of the financial sector sy is how 174 00:10:07,080 --> 00:10:12,160 Speaker 2: the transition is going. Hitch funds a certain type of capital. 175 00:10:12,320 --> 00:10:15,760 Speaker 2: They are the fast money. They will look at things 176 00:10:15,800 --> 00:10:19,199 Speaker 2: in the short term. It's quite different from other types 177 00:10:19,240 --> 00:10:22,920 Speaker 2: of asset managers. But at the same time, when you 178 00:10:22,960 --> 00:10:26,240 Speaker 2: look at broader pools of capital, you have pension funds 179 00:10:26,240 --> 00:10:31,760 Speaker 2: for example, pushing out mandates that are sustainability focused. Performance 180 00:10:32,120 --> 00:10:36,600 Speaker 2: will determine how much appetite there is for investments in 181 00:10:36,640 --> 00:10:42,040 Speaker 2: this space. So I think what this data tells us 182 00:10:42,240 --> 00:10:45,560 Speaker 2: is that there has been a bump in the road. 183 00:10:45,840 --> 00:10:49,680 Speaker 2: It wasn't as rosy as what we expected the future 184 00:10:49,720 --> 00:10:54,400 Speaker 2: would be like in twenty twenty one, but the energy 185 00:10:54,400 --> 00:10:58,360 Speaker 2: transition is still ongoing. I think that is a good 186 00:10:58,600 --> 00:11:03,720 Speaker 2: way to think about how the long term prospects. 187 00:11:03,160 --> 00:11:05,800 Speaker 1: Could be Cheryl, Thank you very much. 188 00:11:06,200 --> 00:11:07,320 Speaker 2: Thanks a lot, David. 189 00:11:13,080 --> 00:11:15,640 Speaker 1: This is the Big Take from Bloomberg News. I'm David Gura. 190 00:11:16,000 --> 00:11:19,160 Speaker 1: This episode was produced by David Fox. It was edited 191 00:11:19,200 --> 00:11:21,840 Speaker 1: by Aaron Edwards and Tim Quinson. It was mixed by 192 00:11:21,840 --> 00:11:25,480 Speaker 1: Alex Sagura and fact checked by Adriana Tapia. Our senior 193 00:11:25,520 --> 00:11:29,120 Speaker 1: producer is Naomi Shaven. Our senior editor is Elizabeth Ponso. 194 00:11:29,440 --> 00:11:33,000 Speaker 1: Our executive producer is Nicole Beemster. Board Sage Bauman is 195 00:11:33,040 --> 00:11:36,320 Speaker 1: Bloomberg's head of podcasts. If you liked this episode, make 196 00:11:36,320 --> 00:11:38,600 Speaker 1: sure to subscribe and review The Big Take wherever you 197 00:11:38,679 --> 00:11:42,040 Speaker 1: listen to podcasts. It helps people find the show. Thanks 198 00:11:42,040 --> 00:11:43,760 Speaker 1: for listening. We'll be back tomorrow.