What Happened to ESG Stocks?

Investments in alternative energy have become unattractive due to higher interest rates, not changes in government policies, adoption or pricing of green technologies.

While Environmental, Social, Governance (ESG) investment screens based on corporate policies mean different things to different people, for investors the term is probably most closely associated with "green" or alternative sources of energy to address sustainability and climate concerns.

The lead-up to the 2020 U.S. elections saw alternative energy stocks outperform traditional energy stocks by a very wide margin, as you can see in the chart below. Progress on Europe's Green Deal and candidate Biden's emphasis on climate initiatives gave these stocks a big boost, especially relative to traditional energy companies. Over the subsequent three years, the performance gap has been completely erased. What happened?

Alternative energy has given up all its outperformance relative to traditional energy