Green energy stocks have plummeted to levels last seen five years ago, reversing gains made during the height of the environmental, social, and governance (ESG) investment boom. As reported by the Financial Times, investor sentiment has been dampened by political uncertainty surrounding the transition away from fossil fuels, particularly in the U.S. and parts of Europe.
The S&P Global Clean Energy Transition Index, a key benchmark tracking major clean energy firms, has declined by 16% over the past 12 months. Despite expectations of a rebound driven by stabilizing interest rates and rising electricity prices, recent policy shifts have instead fueled pessimism. Notably, former U.S. President Donald Trump’s decisions to freeze Inflation Reduction Act (IRA) funding for green projects and withdraw from the Paris climate agreement have further rattled investors.
European markets have also seen declining support for fossil fuel reduction measures, adding to the sector’s struggles. Deirdre Cooper, head of sustainable equity at global investment firm Ninety One, described the current negativity in the sector as “exceptional” and at odds with strong company performance. “I have never seen such bearishness in terms of valuation for companies with structural growth,” she noted, emphasizing that businesses in the decarbonization sector continue to show stable returns despite falling share prices.
Analysts at S&P Dow Jones Indices attributed the sector’s underperformance to ongoing challenges such as high interest rates, inflationary pressures, and policy uncertainty. Unlike clean energy, the S&P Global BMI Energy Index—heavily weighted toward oil and gas—saw a comparatively smaller 5% decline over the same period, as fossil fuel companies benefited from Trump’s pro-drilling stance. Meanwhile, the S&P Aerospace and Defense Select Industry Index surged by 14%, driven by expectations of increased defense spending in the EU.
The downward trend for clean energy stocks began after their 2021 peak, coinciding with rising interest rates that made capital-intensive renewable energy projects more costly. However, the index’s overall performance masks considerable variation among companies. For example, Danish wind turbine manufacturer Vestas saw its stock plummet by over 44% in the past year, whereas Spanish renewable energy developer Iberdrola gained nearly 30%.
Despite market pessimism, some analysts maintain a cautiously optimistic outlook. James Smith, fund manager at Premier Miton, argued that investors may be overly fixated on interest rate pressures, noting that many clean energy developers have index-linked returns. He also highlighted continued bipartisan support for green energy tax credits in the U.S.
Investment in clean energy technology remains strong, with S&P Global Commodity Insights predicting it will surpass upstream oil and gas spending for the first time by 2025, largely driven by growth in solar and battery storage. RBC Capital Markets analyst Erwan Kerouredan noted that hydrogen companies with exposure beyond the U.S. and EU, particularly in the Middle East, are better positioned due to stronger funding environments.
