Greenflation – ESG Feature


The rapid adoption of green strategies and the lack of specific assets is causing implications for investors. Andrew Holt reports.


Same positions


This raises problematic questions about the market and how it works in terms of ESG investing, King says. “The market envi- ronment around ESG incentivises everyone to be invested in pretty much the same positions. Which is never a healthy envi- ronment. A regulatory system – with slightly unrealistic ESG standards – and a climate that encourages everybody to put the same trade on is ultimately not a healthy one for the financial markets,” she says.


It is a concern shared by Désirée Lucchese, an ESG data and UN Sustainable Development Goals expert. “Capital flows and heightened interest in ESG funds have caused an increase in valuations of highly coveted stocks,” she says. “These flows have not been adequately matched by availability of underlying


investable assets. For years, green bond issuance of externally reviewed, certified or verified bonds have also been over-subscribed.” Lucchese, therefore, declares greenflation a negative scenario. “We are undergoing the greatest inflationary storm of all times; we are talking about escalating inflation with a bite,” she says. This will see greenflation combined with climateflation, which is where food crops and key commodities fail to reach market, and fossilflation where energy supply-demand comes under pressure. “These inflationary shocks mean that they will unex- pectedly add to current and future price pressures,” she says.


Deflationary scenario But Alex Bernhardt, global head of sustainability research at


Issue 115 | July–August 2022 | portfolio institutional | 33


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