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).
Subscribe to 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.
Sign up for MoneyWeek's newsletters
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.
-
Which investment trusts could benefit from lower interest rates?
As vehicles for long-term investments, many investment trusts were hit when interest rates rose in 2022. With interest rates expected to fall by the end of the year, could now be the time to invest in one of these unloved sectors?
-
How to protect your personal and financial data from cyber attacks
M&S and the Co-op are the latest retailers to suffer from cyber hacks but consumers also need to be vigilant
-
Unilever braces for inflation amid tariff uncertainty – what does it mean for investors?
Consumer-goods giant Unilever has made steady progress simplifying its operations. Will tariffs now cause turbulence?
-
Two ways to tap into monopoly profits from airports
Most investors can’t get their hands on airports. Here are two ways you can
-
Fat profits: should you invest in weight-loss drugs?
The latest weight-loss treatments could transform public health and the world economy. Should you invest?
-
How investors could profit from Ramsden Holdings' four-part growth strategy
Ramsdens Holdings offers a diversified set of financial and retail services and a juicy yield, says Dr Michael Tubbs
-
How to invest in the booming insurance market
The insurance sector is experiencing rapid growth after years of stagnation. Smart investors should buy in now, says Rupert Hargreaves
-
Out of America's shadow: Why Trump's tariff chaos may be good for non-US stocks
Opinion Upending global investment and trade could benefit other countries at the expense of the US market, says Cris Sholto Heaton
-
BP's 'long, painful decline' – and why next year could be even tougher
Opinion Long-suffering shareholders in oil giant BP have been pushing for change. It won’t come soon enough, says Matthew Lynn
-
Investment trusts tap the profits in exotic and obscure global markets
Opinion Peter Walls, manager of the Unicorn Mastertrust fund, highlights three investment trusts as he shares where he'd put his money