The rush to make investments with good environmental, social and governance (ESG) credentials may make investors feel better about the future of the planet, but is this having a negative knock on effect on more traditional investments?

Larger investors, such as pension funds and university endowments, are exiting more traditional investments, including those based on fossil fuels, in order to show off their green credentials to stakeholders. But the dynamics of the markets mean that this is leading to severe undervaluation of more traditional investments and wild over-pricing of renewable assets.  

A more balanced approach should recognise that continued investment into the more traditional sectors, including oil and gas, is vital for the next few decades as we transition into cleaner energy. An ESG bubble is in the interests of nobody, and as the world markets adjust to less turbulent times let's hope rational investment decisions prevail.