A contrarian take on ESG investing: buy coal
The best way to take advantage of today’s ESG and clean energy enthusiasm is not to invest in the clean energy stocks everyone loves, says Merryn Somerset Webb, but in the old, dirty ones.


You know something odd is going on in global markets, but do you know quite how odd? Here’s a hint that the level of distortion is getting a bit too weird for comfort. In the US, the number of loss-making mid- and small-cap companies as a percentage of the total is at an all-time high (29%). We can forgive a lot of losses right now (lockdown, etc) and this number often peaks towards the end of a recession. But how’s this for nuts: investors are currently paying a premium for those loss-making companies. They’ll pay more for “no money”, than they will for “some money” (see this week's magazine for how to avoid doing the same). Then there’s this: nearly 80% of initial public offerings in the US come with what analysts like to call “negative earnings” (losses). We could fill pages with indicators such as this – reminders that bullishness is at an extreme and that, while recognising that the madness could continue for a long time, we should adjust our portfolios accordingly.
How? Find where the “prevailing narrative in the market is disjointed from the realistic trajectory for operations in the real world” – in a negative way, says Kennox Asset Management’s Charles Heenan. One example is oil and mining – where prices are finally starting to soar. Oil was back above $60 a barrel this week having effectively gone to zero last spring. So how about buying Shell, says Heenan? No one is investing in supply anymore – “it’s absolutely brutal out there”. That’s partly because prices have been low (low prices lead to falling supply). But it’s also about ESG investing (investing with an eye to environmental, social and governance issues). Big oil firms, like big miners, are not exactly top of the pops with modern institutional investors and their obsession with the optics of their newly acquired moral frameworks. That not only makes it hard for dirty commodity firms to invest in new supply, but also very costly for them to do so: new projects come with new levels of regulatory costs as well as much higher payments to communities (water management, engagement, healthcare, etc) and governments (taxes and royalties).
That’s no bad thing. But it does push up the overall cost of increasing supply. That’s a long-term problem given that fossil fuels still generate 80% of global energy and alternatives cannot yet hit the same scale. It makes little sense, notes Heenan, to vilify the firms keeping our lights on, our ambulances running, our laptops powered, our bitcoin mined (!) and our food refrigerated. Given this, the best way to take advantage of today’s ESG and clean energy enthusiasm is not to invest in the clean energy stocks everyone loves – say, Ceres Power (up 1,000% in the last two years) – but in the old energy stocks everyone still needs (Shell is down 41% in the same period).
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
If that sounds interesting (and you can consider this, while also thinking that clean energy and a clear path to “net zero” is badly needed) you might also look at thermal coal, today’s ultimate contrarian investment. Value investor Andrew Hunt notes that supply is static-to-falling, but demand very much still with us. Look perhaps to Glencore in the UK for exposure. If single stock investing is not for you, note that, just as by being a passive investor in the US you are a tech investor, just by being a passive investor in the UK you are a commodities investor: energy and miners make up more than 20% of the FTSE 100 index. Perhaps after years of underperformance, the UK market might finally be coming good.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
Gilt yield surge puts Rachel Reeves under renewed pressure
Rising gilt yields mean government borrowing costs are reaching precarious levels
-
5 alternatives to Reeves’ inheritance tax raid on rural Britain as families face ‘splitting up or selling’ farms
Inheritance tax limits are now so low they attack small working family farms rather than just going after tax loopholes, one Cotswolds farmer has said
-
Are wealthy whisky enthusiasts leaving Britain?
Collectables Wealthy whisky enthusiasts are heading to tax-friendly countries such as Dubai, where there is more disposable income to spend on collectable luxuries like rare whisky.
-
'The rise and fall of Kodak is a lesson for the tech giants'
Opinion The long decline of Kodak – a once-dominant company – shows why no business is safe from disruption, says Matthew Lynn
-
8 of the best properties for sale with kitchen gardens
The best properties for sale with kitchen gardens – from a 17th-century timber-framed hall house in Norfolk, to an Arts & Crafts house in West Sussex designed by Charles Voysey with a garden by Gertrude Jekyll
-
Why investors can no longer trust traditional statistical indicators
Opinion The statistical indicators and data investors have relied on for decades are no longer fit for purpose. It's time to move on, says Helen Thomas
-
Investors rediscover the virtue of value investing over growth
Growth investing, betting on rapidly expanding companies, has proved successful since 2008. But now the other main investment style seems to be coming back into fashion.
-
8 of the best properties for sale with shooting estates
The best properties for sale with shooting estates – from an estate in a designated Dark Sky area in Ayrshire, Scotland, to a hunting estate in Tuscany with a wild boar, mouflon, deer and hare shoot
-
The most likely outcome of the AI boom is a big fall
Opinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth
-
What we can learn from Britain’s "Dashing Dozen" stocks
Stocks that consistently outperform the market are clearly doing something right. What can we learn from the UK's top performers and which ones are still buys?