WHEB Commentary

The online mob and the sustainability transition


Very few will mourn the passing of 2020. But those hoping for a calmer new year were swiftly disappointed.

2021 was only six days old when the US Capitol was stormed by a motley crew of extremists and fantasists. This perplexing event met its financial markets equivalent in the very same month. Gamestop shares soared 1,745% in the first 17 trading days of the year.

Gamestop is a physical retailer of computer games in the USA. It is not a promising business: gamers now buy their games online. That surge took its market capitalisation above that of half of the companies in the S&P500. The peak price of $347 was short-lived though; it has since lost 85% of that value.

These two January dramas share common features. They were both orchestrated online by thriving, self-defined communities – which in these two cases, may have some overlap. Those communities are bound by shared views which are deepened by their virtual interactions. And they are enabled by an ecosystem of service providers and commentators who aren’t living up to their responsibilities.

Moreover, in both cases, the outcomes for different members of the community are strikingly different. The “winners” are the early influencers who incite the dramatic actions, and then get safely away. The losers are the slower, biddable followers. They are now nursing heavy loses (in the case of Gamestop) or meaningful criminal charges (in the case of the insurrection in Washington).

Unfortunately, there is something else that unifies these two absorbing events. They both really matter for the cause of sustainability. If we are to transition to a more sustainable economy, we need good decision-making. We also need functioning capital allocation. The challenges are big enough on their own that they will be insurmountable without these key tools.

This is where we can draw a distinction. The Capitol insurrection was straightforwardly bad. Despite its flaws, democracy remains by far the best system of government. It is the only plausible way to unite all the stakeholders in the transition to a zero carbon, sustainable society.

The Gamestop ruction and the arrival of chatroom retail investors is different. It’s clear that the shift to a sustainable economy will rely on creative destruction. Through one lens, this apparent market mayhem is just part of that.

Capital markets are always richer for more participants, with more diverging views. Heal-dragging incumbents are challenged. Visionaries can bring their brilliant new ideas to the stage. The tumult eventually ensures that something approaching the best idea, wins.

But there are reasons to worry that the Gamestop phenomenon doesn’t exactly fit that bill.
The Gamestop move was a long way from a fundamental argument about a stock’s prospects. Even the most bullish turnaround (an end to online game downloads?!) would come nowhere near justifying the price it reached. Instead, the moves just generated enormous excess volatility. Which goes against the messy-but-reliable price formation process any good market needs.

In any period and any market, this is important. But for sustainability in 2021, it is quite acute. And that is because the same retail investment phenomenon has powered a related surge in renewable energy stocks (the WilderHill Clean Energy Index has, relative to the MSCI World, risen by 251% since mid-March 2020).

Cleantech, alongside info tech and biotech, now has a valuation-agnostic thematic following.
Our strategy is one of the few survivors old enough to remember the last time this happened, in 2007. The crash that followed that peak was deep enough that even this recent run is still some way off recovering its heights.

It was hugely, hugely damaging to the clean energy industry and slowed the deployment of renewable energy. Cleantech became a synonym for losses. It was impossible to attract new capital, and things got worse when the oil price surged above $100 a few years later. Investment flooded into fossil fuels instead. It is not too much to talk about a lost decade in sustainability investing.

Happily, there are some major differences between now and 2007. Clean energy is now the lowest cost form of generation in most markets. And 2020’s net zero carbon commitments from around the world represent a seismic shift in political support.

Less happily, we don’t really have another decade to spare. Coronavirus-induced lock-downs aside, global emissions are not likely to peak until the mid-2020s. The task ahead remains mountainous. Another crash could be a real crisis.

So we have to hope that, in this newly-febrile atmosphere in stockmarkets, there are enough players with a long-term view. And that the best companies can repay this faith, while the weaker ones fade without taking the market with them. Interesting times indeed.

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