Article last updated 22 July 2025.
The size of my household is growing, and the patter of tiny feet is deafening. “Chicks, £5 each” the sign by the side of the road said. Sadly my other half had £20 on her. Sold to me as an investment in fresh eggs, the break-even seems to be going up exponentially. Each day another package arrives, if its not chicken related (feed, supplements, bedding, coup, battery for electric fence, the list goes on), it’s the latest ‘bargain’ on Brand Alley.
My hallway is unlikely to be the only one in the country that resembles a parcel force depot (I know Craig has got to know the Next delivery guy intimately), as over the past year our shopping habits have shifted almost entirely online. Consumers were already shifting to online shopping before the pandemic, but COVID-19 simply hurried things up.
Whilst not a big ‘consumer’, my own life is still an alphabet soup of today’s technology companies: Amazon Prime, Disney Plus, Netflix, Nike Training Club, Monzo, HeadSpace, Uber Eats. In fact, it’s everything I need for staying indoors. But as we’re all emerging from our winter hibernation and trying, in one way or another, to get back to normality, perhaps some of these need to go?
Commentators have long suggested a bubble is forming in the technology sector, and the pandemic and a belief that tech adoption will accelerate as people work from home more often has only served to increase the noise. Will our love affair with online shopping and streaming services come to an abrupt end once life returns to normal? As ever the argument is not that simple. Our behaviour has gone through a fundamental shift and the acceleration of cards over cash, cloud adoption, online shopping, etc. is unlikely to reverse. But certain businesses that have benefitted from the current crisis might find it a more of a struggle in a more normal world. I for one won’t be retaining all my streaming services, and the meal-kit businesses, craft websites, food delivery services, online gym apps, etc may find life more difficult as a form of normality returns, and fail to justify some of the eye watering multiples that demand faultless growth.
You could argue it’s the same case for ESG investments. Share prices in electric car manufacturers, socially responsible technology firms that facilitate remote working and clean energy companies have performed well during the pandemic and this has attracted yet even more interest into these companies and sustainable investing in general.
But is it a bubble?
For ESG investing in particular, there are several factors that have attracted large numbers of investors over the past year. For starters, sustainable investments have shied away from heavy-polluting industries, so they were largely unscathed by the slowdown in international travel and lower demand for fossil fuels. Perhaps more significantly, many sustainable funds have had high exposure to many of the aforementioned technology companies that make life easier in a socially distanced world.
Clean energy also benefited, but this wasn’t necessarily just because it is the darling of punters chatting over a backyard grill. When the pandemic brought many economies to a halt, demand for energy and fossil fuels plummeted. Power grid operators took advantage of the cheapest energy sources to meet demand, and in many cases this turned out to be renewables like solar and wind power whose costs have plummeted over the last decade thanks to continuous technological innovation. There is also a global push towards cleaner energy providing a regulatory tailwind to the sector.
There is no doubt greater interest in ESG investing right now, and some of that interest has helped drive valuations higher. But in my opinion this doesn’t necessarily indicate a bubble, but it does mean you need to be selective. Just like with the technology companies - take the so-called FAANG stocks of Facebook, Apple, Amazon, Netflix and Google as an example. Their share prices have risen dramatically in recent years partly because of the wider rise in tech stocks, but when you look a little bit closer each is exposed to different return drivers and risks. Look at this way: if demand for streaming video suddenly tapers off as we venture back into the wide world, it’s likely Amazon will be sheltered because its business is so diversified these days, but Netflix will be exposed.
We can’t lump companies together into one convenient ‘sustainable’ bucket just because they seem to tick all the right boxes. They do different things, serve different markets and are affected by different forces. It’s much more effective to look at each company and judge it on its own merits when determining its future prospects.
ESG isn’t a sector or a market in its own right – and doing the right thing does not automatically guarantee success. As investors looking for sustainable investments we want companies with genuine long term growth opportunities, high barriers to entry, strong balance sheets and those that can be successful in a range of environments. And unpicking the various risks that impact each company is key, else you might find your chickens come home to roost.
