Speaker 1: Bloomberg Audio Studios, podcasts, radio news. A few years ago,
Speaker 1: it seemed like everyone was betting big on the future
Speaker 1: of the so called green economy.
Speaker 2: So there were thousands of these ESG funds being launched,
Speaker 2: and we had sectors like solar win EV's battery technology
Speaker 2: doing very well. Investors were talking about these themes with
Speaker 2: a lot of enthusiasm.
Speaker 1: Bloomberg Cheryl Lee covers ESG investing that's shorthand for investments
Speaker 1: that have to meet certain standards environmental, social, and governance goals.
Speaker 1: Back in twenty twenty one, Cheryl says some of the
Speaker 1: biggest names in finance were all in on ESG.
Speaker 2: Larry Fink, the head of black Rock, which is the
Speaker 2: world's biggest SSM manager, was really promoting those three letters.
Speaker 1: Think wrote about it in twenty twenty one in his
Speaker 1: annual letter to CEOs, a document that's widely read on
Speaker 1: Wall Street, and he marveled at how much momentum there
Speaker 1: was behind ESG investing in an appearance on Bloomberg TV.
Speaker 3: In my forty four years of doing this, I've never
Speaker 3: seen the speed in which this narrative is evolving and changing.
Speaker 3: I believe there will be a future, that all investments
Speaker 3: are going to be looked through sustainability.
Speaker 2: People thought that this was the start of the transition
Speaker 2: away from fossil fuels and there were going to be
Speaker 2: a lot of returns from companies leading the clean energy revolution.
Speaker 1: But Cheryl says the landscape has changed along with investor appetite.
Speaker 1: In twenty twenty three, Larry Fink said he'd stopped using
Speaker 1: the term ESG because it's been, as he put it, weaponized.
Speaker 1: It was a stark shift that underscored just how quickly
Speaker 1: the world of finance changed its tune on one of
Speaker 1: the biggest investment trends in recent history. I'm David Gera,
Speaker 1: and this is the big take from Bloomberg News today.
Speaker 1: On the show, why investors that had bet on the
Speaker 1: future of the green economy are now betting against it.
Speaker 1: Bloomberg's Cheryl Lee analyze positions. More than five hundred hedge
Speaker 1: funds have taken on green energy, and she found that
Speaker 1: more of those funds are now going short on ESG
Speaker 1: than are going long. When we talk about a hedge
Speaker 1: fund going short, what does that mean exactly?
Speaker 2: I think we all know that if you take a
Speaker 2: long bet on a stock that means you're buying the
Speaker 2: shares with the expectation that the price will rise over
Speaker 2: time and you'll make a profit. And when it comes
Speaker 2: to taking a shot bet, and you're hoping that the
Speaker 2: stock's price will decrease. So basically what a shot bet
Speaker 2: is is a bet that the stock is going to
Speaker 2: fall in value.
Speaker 1: I wanted to ask you how transparent hedge funds are,
Speaker 1: or how transparent hedge funds have to be when it
Speaker 1: comes to what positions they're taking. Is it easy to
Speaker 1: find this kind of information about what kind of bets
Speaker 1: they're making.
Speaker 2: It's really difficult. The challenge is really having the data
Speaker 2: from hedge funds. So the five trillion dollar hedge fund
Speaker 2: industry is subject to less stringent disclosure rules than many
Speaker 2: other types of asset managers, so it's not easy getting
Speaker 2: that data at all, and shot beds are even harder
Speaker 2: to get.
Speaker 1: But Cheryl and her colleagues found a way to peak
Speaker 1: behind the curtain. They looked at data collected by a
Speaker 1: company called hazel Tree Data. Hedge funds had shared anonymously
Speaker 1: about positions they'd taken.
Speaker 2: So using hazel Trees data, we looked into like four
Speaker 2: hundred stocks across the energy transition space to understand how
Speaker 2: this extremely money minded group of investors was betting on
Speaker 2: specific stocks and sectors.
Speaker 1: Cheryl couldn't see what individual hedge funds were doing, but
Speaker 1: she and her colleagues were able to spot trends, so we.
Speaker 2: Would know, for example, five percent of all these hedge
Speaker 2: funds net long in a specific stock, and maybe it
Speaker 2: person a net shot in debt stop. And then we
Speaker 2: also averaged it out across companies to get a sector average.
Speaker 1: And that information gave Cheryl a pretty clear sense of
Speaker 1: how the hedge fund industry is thinking about the future
Speaker 1: of the clean energy transition of investments in companies that
Speaker 1: are part of the green economy. On the whole, Cheryl
Speaker 1: and her team found that more hedge funds were short
Speaker 1: green stocks than long. In other words, the emerging consensus
Speaker 1: seems to be that clean energy investments, which have fallen
Speaker 1: in value for years now, are expected to fall even more.
Speaker 1: But something else jumped out at her.
Speaker 2: You had more funds long fossil fuels than were shotting
Speaker 2: oil and gas and cool.
Speaker 1: I think that'll surprise a lot of people given what
Speaker 1: we've talked about, that there was this moment of such
Speaker 1: enthusiasm for ESG for a kind of transition to a
Speaker 1: green economy. Why is that the case. What did hedgehund
Speaker 1: managers say to you about why they are long on
Speaker 1: fossil fuels?
Speaker 2: In particular, the hedgehund managers that we interviewed said that
Speaker 2: they were buying fossil fuels because they feel like it's
Speaker 2: a needed, reliable source of energy as the world transitions.
Speaker 1: But there were other factors that led to bigger bets
Speaker 1: on fossil fuels. First and foremost conflict in Europe, which
Speaker 1: sent shock waves through the global energy market.
Speaker 2: We had a Russia Ukraine war, and then there was
Speaker 2: a boon for fossil fuel stocks instead because it was
Speaker 2: worsening supply constraints. You had Russia, which is one of
Speaker 2: the world's largest oil and gas producers, and the conflict
Speaker 2: led to those sanctions on Russian energy exports. So they
Speaker 2: created a lot of uncertainty and disruptions, and a lot
Speaker 2: of countries were worried about where they were going to
Speaker 2: get a secure source of energy, and that led to
Speaker 2: a boon for fossil fuels.
Speaker 1: That explains why hedge funds went long on fossil fuels.
Speaker 1: But why are they betting against the green economy and
Speaker 1: what does that mean for investors and the future the planet?
Speaker 1: That's next Bloomberg. Cheryl Lee and her team did an
Speaker 1: extensive analysis of data for more than five hundred hedge
Speaker 1: funds and discovered that more of those funds are now
Speaker 1: betting against the future of the green economy than are
Speaker 1: betting on it. I know you've talked to hedge fund managers.
Speaker 1: What did they tell you about why this shift is happening,
Speaker 1: Why they're shorting greenstocks?
Speaker 2: So they're shotting greenstocks for a couple of reasons. Performance
Speaker 2: hasn't been very good, so momentum has been negative for
Speaker 2: green stocks for the past couple of years. We had
Speaker 2: the unwinding of COVID traits and higher interest rates and
Speaker 2: supply chain issues, so many investors left the sector.
Speaker 1: And Cheryl says that even though the Federal Reserve and
Speaker 1: other central banks have begun to lower interest rates, the
Speaker 1: economic environment is still challenging for these companies, including the
Speaker 1: San Francisco based solar companies un Run and Tesla.
Speaker 2: We have a tough macroeconomic backdrop. Higher interest rates have
Speaker 2: upended capital intensive projects like offshore wind farms and limited
Speaker 2: funding for emerging technologies, and we are only now starting
Speaker 2: to see rates for but Cheryl says.
Speaker 1: Hedge fund managers are also worried about politics, and especially
Speaker 1: about the upcoming election in the United States.
Speaker 2: So investment managers who are very much pro ESG they
Speaker 2: have to defend themselves against US Republicans who call ESG
Speaker 2: an anti capitalist conspiracy. And the most important factor of all,
Speaker 2: according through all these hedge fund managers that we interviewed,
Speaker 2: is geopolitical risks between US and China. So they feel
Speaker 2: obstacles such as tariff wars between the two countries will
Speaker 2: directly hit green products like ebs and solar, So that's
Speaker 2: why they're unwilling to invest in these classic green beds.
Speaker 2: The risk of a full blown trade war targeting China's
Speaker 2: products is a direct thread to the appeal of clean
Speaker 2: energy stocks.
Speaker 1: There is so much rhetoric from the Republican candidate about
Speaker 1: the kind of tariffs that he would impose and what
Speaker 1: that might do to the trade relationship with China. What
Speaker 1: did these hedgpoon managers say just about the prospect of
Speaker 1: what would happen if those tariffs were to be put
Speaker 1: in place, so those kind of extreme punitive tariffs.
Speaker 2: So if those terrants are put in place, they see
Speaker 2: greater fallout because what that would result in is higher
Speaker 2: prices and inflation across the bot so that would hurt
Speaker 2: these green sectors even more so. If Donald Trump regains
Speaker 2: the White House, then he has already had his plans
Speaker 2: to take back and spend climate funding and raise duties
Speaker 2: on Chinese made goods to sixty percent or more. So
Speaker 2: the outcome of the US elections is also something that
Speaker 2: the hedge fire managers are watching very closely.
Speaker 1: What kind of a difference would it make I Kamala
Speaker 1: Harris were to be elected.
Speaker 2: When they contrasted Kamala Harris versus Donald Trump presidency, they
Speaker 2: feel Kamala Harris would be more favorable towards the green sectors,
Speaker 2: so that none of them have expressed views as to
Speaker 2: who they think will likely win the election. So that's
Speaker 2: also one of the reasons why the hedge funds are
Speaker 2: staying out of green sectors for now, because you can
Speaker 2: price risk, but it's really difficult to price uncertainty, and
Speaker 2: so over the next few months, once the election is done,
Speaker 2: there will be more clarity on how supportive policies might
Speaker 2: be around clean energy or evs, for example, and some
Speaker 2: of the HEDGEMA managers said that that's when they would
Speaker 2: consider getting into the market again.
Speaker 1: I asked Eryl what conclusions she and her team can
Speaker 1: draw from their analysis, what the data tell them about
Speaker 1: the overall appetite for ESG investing, and what they don't.
Speaker 2: I think it's a window to a moment in time.
Speaker 2: What one part of the financial sector sy is how
Speaker 2: the transition is going. Hitch funds a certain type of capital.
Speaker 2: They are the fast money. They will look at things
Speaker 2: in the short term. It's quite different from other types
Speaker 2: of asset managers. But at the same time, when you
Speaker 2: look at broader pools of capital, you have pension funds
Speaker 2: for example, pushing out mandates that are sustainability focused. Performance
Speaker 2: will determine how much appetite there is for investments in
Speaker 2: this space. So I think what this data tells us
Speaker 2: is that there has been a bump in the road.
Speaker 2: It wasn't as rosy as what we expected the future
Speaker 2: would be like in twenty twenty one, but the energy
Speaker 2: transition is still ongoing. I think that is a good
Speaker 2: way to think about how the long term prospects.
Speaker 1: Could be Cheryl, Thank you very much.
Speaker 2: Thanks a lot, David.
Speaker 1: This is the Big Take from Bloomberg News. I'm David Gura.
Speaker 1: This episode was produced by David Fox. It was edited
Speaker 1: by Aaron Edwards and Tim Quinson. It was mixed by
Speaker 1: Alex Sagura and fact checked by Adriana Tapia. Our senior
Speaker 1: producer is Naomi Shaven. Our senior editor is Elizabeth Ponso.
Speaker 1: Our executive producer is Nicole Beemster. Board Sage Bauman is
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