Environmental markets buoyant despite pandemic

The coronavirus pandemic rocked the markets, but the environmental theme looks set to be a long-term winner, says Peter Cripps

The coronavirus pandemic wreaked havoc with the global economy in 2020, pushing businesses under and wrecking government finances.

But the traded environmental markets, covered by Environmental Finance's Market Rankings, have a different story to tell.

While not immune from the horrors of Covid-19, they appear to have survived its infection, and have emerged in rude health.

That is mainly because they are driven by long-term trends such as climate change, which have not been impacted by the pandemic.

It seems that action to tackle climate change may have been hastened by the pandemic, as governments around the world have understood that the recovery needs to be a green recovery.

So, commitments to environmental policies seem to be strengthening, rather than falling victim to the malaise spread by the pandemic.

That is good news for the carbon markets, which look to put a price on carbon and cap emissions of greenhouse gases.

They are benefitting from buoyant sentiment. For example, Louis Redshaw, CEO of Redshaw Advisors, expects the EU's Green Deal to lead to materially higher prices of EU Allowances, "sooner rather than later".

Another contributing factor is the change in administration in the US.

As David McCullough at Eversheds Sutherland puts it, a Biden administration is expected to be "very favourable" for carbon markets the US.

Meanwhile, the structural change in the energy grid, as ever-cheapening renewable energy comes online, displacing fossil fuels, has not been reversed by the pandemic. This has been positive for the market in renewable energy certificates (RECs).

Tim Pabst, managing director of STX, which won three awards, says: "Despite Covid-19 and the overall decrease in energy demand, renewable energy supply saw record growth in 2020," propelled by government policy and corporate demand for voluntary RECs.

He adds that, if the more climate- friendly policies of the incoming Biden administration can be implemented it could accelerate renewable energy development, especially by tackling one of the biggest issues, the outdated infrastructure... we expect the federal government to step up in their own green procurement."

This also has ramifications for the  weather market, which is seeing the types of products sold adapt to this new renewables-powered reality.

And the effects of climate change are not going away, leading to strong demand for 'traditional' weather hedges and weather- related cat bonds.

Overall, the growing impacts of climate change, the growing acceptance that it is a problem that needs to be urgently addressed, and the fact the response to the pandemic offers an opportunity to do this, augur well for these markets.

Many of the players which are mentioned in the following pages – for example, Element Markets, which also won six gongs last year – have been plugging away at these markets for years, and it looks like their dedication will be increasingly rewarded for years to come.

Congratulations to all this year's winners.