Green Investors Were Crushed. Now It’s Time to Make Money.

Invest according to your political views, and you’re unlikely to make money. Companies that appeal to left-wingers or to right-wingers might be good or bad investments, but the fact of being, on current politics, clean and union-friendly for the left or oily and gun-friendly for the right is neither here nor there. What matters is their ability to make money and how highly they are valued.

This has been rammed home for environmentally-minded investors in the past year, as a coordinated selloff in anything with green credentials crushed the idea of making money while doing good.

It turns out that the real world is tougher than advocates of ESG—environmental, social and governance—investing claimed. The lessons have been hard, but should remind investors in the sector of some of the basic facts of investing. The fall in prices has improved the outlook for the stocks.

This year has been almost universally bad for clean investments. The two worst performers still in the S&P 500 are solar companies Enphase Energy and SolarEdge Technologies, down 60% and 70%, respectively. Hydrogen stocks have fallen sharply, led by Plug Power, which warned it might not survive. Wind-farm developers have been doing so badly they have pulled out of some contracts, with Denmark’s Ørsted off 48% in dollar terms and Florida-based NextEra Energy off 29%.

Electric cars have disappointed too, hitting startups and suppliers and pushing the price of lithium ores, used to produce the battery metal, down by three-quarters or more, although market-leader Tesla’s stock has been an exception.

Just as there was a coordinated green selloff, there has been a coordinated partial rebound in the past month or so.

This provides the first lesson: debt. The clean-energy sector is dependent on vast amounts of borrowing, so high interest rates really hurt. Roman Boner, who runs a clean-energy fund at Dutch fund manager Robeco, points out that major projects are typically financed with 80% debt, so rises in financing costs have a big impact on competitiveness.

Investors who bought into green stocks probably didn’t think they were making a leveraged bet on Treasurys, but that is what they ended up with. It isn’t only about corporate financing costs, either. High borrowing costs hit consumer demand for rooftop solar and for electric cars, both of which are often leased, since leasing costs depend on the cost of debt.

At a very high level, this is about long-term thinking. Low rates encourage investors to think long term, because they make future profits almost as valuable as current profits, and encourage borrowing to try to secure those future profits.

High rates encourage short-term thinking, by making profits today far more valuable than future profits—why bet on the future when you can earn 5% from Treasury bills? Short-term we get fossil-fuel profits, while long-term we get either clean energy or global warming; recently investors have been encouraged by rising rates to think short term.

The second lesson: government. Ronald Reagan overstated it when he said: “The nine most terrifying words in the English language are: ‘I’m from the government, and I’m here to help.’” But investors who rely on state subsidies to ensure profits leave themselves at the mercy of both fickle politicians and the bureaucrats Reagan was concerned about. This year’s selloff has been worsened by the bureaucrats and their failure to provide the details of many of the subsidies promised in last year’s badly named Inflation Reduction Act.

“We’re still hoping to get them by year end,” says Ed Lees, co-head of the environmental strategies group at BNP Paribas Asset Management. The next problem might be the politicians, at least if Donald Trump wins the presidency and torches the IRA. Lees thinks this will be hard, because so many IRA-subsidised projects are heading for Republican states. But Trump certainly has no sympathy for environmental causes.

The third lesson is the one most relevant to buying today: valuation. Buying stocks when they are trendy and wildly overpriced is a recipe for disaster. Perhaps the most extreme example of late is the L&G Hydrogen Economy ETF, launched in London at the height of clean-energy excitement in February 2021. It plummeted from day one, never regained its launch price, and is down 55% since then.

“We’ve seen a very harsh reality check,” said Sonja Laud, chief investment officer of L&G Investment Management.

The question is whether the hype has left. Laud worries that one year of high rates won’t have crushed all the excesses built up in 12 years of near-zero rates. But clearly valuations are much lower than they were, and she is hopeful there are opportunities to be found now.

“The huge green premium you had previously is no longer there,” says Velislava Dimitrova, who runs sustainable funds at Fidelity International. Clean-energy stocks are “much more interesting than they used to be—I don’t believe that renewables are dead.”

In the bond market, investors are no longer paying much if any “greenium,” or extra price for green bonds. In stocks, it is harder to judge: The S&P Global Clean Energy index trades at a discount to the global market on some measures, but not others, making it difficult to conclude that the sector as a whole is a wonderful bargain.

Still, it is good news for buyers that the hype has evaporated. Investors who care about profits more than purpose can finally consider clean-energy stocks again.

A wave of corporate warnings and technical disclosures has flooded the media, with headlines worrying over “swarms” of rogue artificial-intelligence agents launching “unprecedented” cyberattacks, outsmarting their makers, and inching toward a terrifying autonomy. The most revealing part of this narrative isn’t what the software did. It’s who is telling the story—and why. When corporate leaders publicly insist that the systems they financed, engineered and deployed are suddenly beyond their power to contain, skepticism isn’t only healthy; it is essential.

For years, Silicon Valley has drawn scrutiny from civil society and global regulators over tangible harms such as youth mental health deterioration and systematic privacy violations. Today, industry figures seem to be trying to change that public image. Loudly blowing the whistle on their own systems—just as two of the leading companies were preparing for massive initial public offerings—lets AI executives position themselves as a new generation of leaders who have come to terms with their societal responsibilities. They seem to want us to believe that they no longer want to “move fast and break things” but will instead stand as vigilant guardians between humanity and a technological apocalypse.

There is one glaring problem: Software doesn’t rebel. A mathematical model possesses neither intent, malice nor the will to defy its creators, let alone extinguish our species. AI is a human artifact, engineered for profit.

When an agentic model in an evaluation sandbox connects to an unauthorized server or executes an exploit, it hasn’t staged a coup. It has tried to meet the human-defined objectives set out before it through a path its designers failed to constrain. It’s the digital equivalent of the King Midas myth, in which the king’s ill-defined wish turns even his food and drink into gold.

That powerful experimental models were able to discover novel vulnerabilities and breach external systems isn’t a sign of a dangerous superintelligence but of human error or negligence. There is no sentient actor lurking in the weights to be reasoned with, feared or pacified. There are only human software engineers, product managers and corporate boards deciding which guardrails are worth the latency cost and which permissions can be skipped in the race to market.

Policymakers and voters need to resist AI exceptionalism. In any other discipline—from civil engineering to pharmaceuticals—courts and regulators treat a system failure as evidence of bad product design and inadequate safety testing. If an aircraft crashes, we focus on finding the engineering defect, correcting it, and enforcing established liability standards for the damage created.

By leaning on an anthropomorphic narrative, Silicon Valley attempts to repackage its specific human choices that led to experimental, powerful models behaving unexpectedly during tests as an existential peril. Elevating the issue to a cosmic scale leaves the public paralyzed and takes ordinary product accountability off the table.

In the cutthroat race for venture capital and market dominance, building guardrails slows down deployment. Grandstanding about uncontrollable power costs nothing and generates billions of dollars in free publicity, justifying stock prices, all while cultivating an aura of technological capability not only to build the frontier but also ultimately to rein it in.

Governments need to recognize regulatory capture when it stares them in the face. Tech leaders’ strategy looks transparent: Alarm Washington and Brussels into creating a regime in which only trillion-dollar incumbents with fully staffed compliance and safety departments can legally operate. By sitting at the policymakers’ tables before anyone else, these companies can help draft rules digging an impassable moat protecting them from open-source developers and upstart competitors, domestic or international. The real danger is in further concentrating the tech industry into the hands of only a few companies with deep pockets.

Beijing and Washington have brushed off those tech leaders’ calls, albeit for very different reasons. Chinese state media dismissed them as part of the “Cold War playbook” and intended to preserve U.S. dominance. Xi Jinping argued for exactly the opposite at the Brics Summit on Sept. 12, calling on Brics countries to “strengthen cooperation in the field of AI, encourage open source, openness, collaboration and sharing, and break new grounds and scale new heights.” President Trump, steeped in a doctrine of unfettered capitalism and technological supremacy, called fears that AI could destroy humanity a “hoax.” Vice President JD Vance warned that AI companies “begging the government to regulate them” looked like a “Trojan Horse.”

Striving to pursue its “European way” on AI and assert regulatory leadership, Europe, by contrast, welcomed the call. European Union President Ursula von der Leyen made this clear at the State of the EU speech last Wednesday and announced that the EU will invite “the main frontier labs for a discussion on how we can support ongoing industry efforts to pace the frontier.”

Europe has been here before. In an effort to lead global regulation and react to fears borne from ChatGPT, Europe rushed its landmark AI Act into law in 2024. Already the world’s most restrictive rulebook, the framework quickly proved too broad and complex to enforce. Stalled by implementation delays and concerns about European competitiveness, the EU postponed the law’s full rollout, leaving regulations uncertain.

AI should be regulated—risks exist and should be taken seriously. But governments need to act based on available evidence and verified facts, not corporate PR panic, the views of industry insiders, or the desire for quick political wins. The greatest danger facing society isn’t that software will awaken and overthrow its human masters. It is that we will allow the creators of the software to abdicate human responsibility for the systems they choose to build and help them pull up the ladder to market access behind them.

Green Investors Were Crushed. Now It’s Time to Make Money.

The lessons have been hard, and are a reminder of the basic facts of investing

AI doesn’t rebel—people design, deploy and profit from it. The real danger lies in allowing tech companies to escape accountability while shaping regulations that protect their dominance.