We are in the early stages of a long transition to sustainable investing. With a growing awareness of climate change and appetence for sustainability, investment flows have started changing course.

Green bonds are on the rise and investors start shifting away from companies focusing on fossil fuels and carbon intensive assets. The incumbents are challenged not only on the products they are selling but also on market value.


In the last few months, two stories hit the news: Tesla overtaking Toyota in market capitalization while NextEra was doing the same with Exxon Mobil.

Tesla’s valuation is now around half a trillion dollars of market capitalization, more than the three closest automakers combined. However, Toyota, now its second, is producing vehicles at a rate of 3.5 million per quarter when Tesla announced 145’000 for the third quarter of 2020.

Half a trillion dollars was Exxon Mobil market capitalization in 2007. It dropped to $142 billion earlier this year, when NextEra surpassed it with 145 billion. Yet, Exxon Mobil operating profit in 2019 was more than three times NextEra’s one.

There is a common thread in these two examples: more than financial performances, investors are endorsing their positioning, betting on new business models, made of renewable energy, storage and electric cars, rather than on actual revenues or profit levels.

Some investors are specifically looking for companies making positive impact on Environmental, Social and Governance (ESG) issues while eliminating from their portfolio companies in industries seen as not sustainable.

A question of values but also opportunities, financing early movers in growing market – renewable energy or electric vehicles – as it is the case for Tesla, NextEra, Iberdrola, Enel, Orsted… They saw their market capitalization rising between 2017 and 2019 by 44% for Tesla (before being multiplied by 7 in 2020 vs 2017), 61% for NextEra, 45% for Iberdrola, 38% for Enel and 100% for Orsted.

Less virtuous, risk avoidance is another strategy. Traditional oil & gas and automotive companies, or utilities are increasingly facing risks posed by the consequences of climate change: early retirement of assets, pushed by economics, more stringent regulations and taxes, means huge amounts of write-offs for their owners. In addition, changing regulations limiting pollutant emissions can lead to compliance failures and trigger big fines. Finally, the growing competition of new technologies developed by their challengers is impacting revenue streams, in turn leading to a reduced return on investment.

On top of the stock market, investment flows are using other routes: green bonds and sustainability-based funds.

In order to finance development, companies (but also countries, development banks…) are launching green bonds, linked to the implementation of sustainability projects mainly in renewable energy, mobility or buildings. It’s a growing funding tool with reached a level of issuance close to $260 billion in 2019, according to the Climate Bonds Initiative. Utilities are amongst the main issuers but companies like Apple, Unilever or PepsiCo are also choosing such financial tools.

An early issuer of green bonds (for a total of €4.4 billion), Enel, the Italian Utility, went one step further in October. They launched a Sustainability-Linked Bond of £500 million on the UK market. This financial product is linked to UN Sustainable Development Goals (SDG) with science based targets measured year on year. Chanel and Novartis are amongst the ones developing this innovative financing.

Another path is creating funds to finance climate related initiatives. Jeff Bezos and Bill Gates, two of the planet’s richest men, have set up theirs. The first one committed $10 billion of grants supporting scientists, activists, the second is leading the Breakthrough Energy Ventures (BEV) planning to invest $1 billion into energy startups with the objective to reduce dramatically emissions.

Sustainable financing and capital reallocation of large energy and mobility players are still at early stages. Of course, it will work only if it’s more than just green washing. And of course it could be faster and bigger. Such drastic changes in mindsets, systems, infrastructures, financing, governance can’t happen overnight. Every action in the right direction counts.

Financial innovations have a key role to play in the transition to a more sustainable world.



(Sources: companies website, BlackRock, CNBC, Forbes, MarketScreener, )