Is there a sustainable investing bubble?

Some fear sustainable investments (or ESG or responsible investments — pick your favourite jargon) have already, or are in the process of forming a bubble.

What is a bubble? We all recognise one after the fact, and most of us would cite the 1999–2001 dotcom boom and bust as the most obvious bubble of recent times. In the 12 months to March 2000, the Nasdaq index in the US (an equity index dominated by technology stocks) rose by around 160%, as the stock prices of almost any company with a ‘.com’ behind its name or an ‘e’ in front of it (as in e-commerce), skyrocketed.

In the 12 months after March 2000, the Nasdaq fell by more than 70%, as it dawned on investors that the internet wasn’t actually going to ruin every traditional industry at the speed of light.

In an interview with Forbes, economist and Nobel laureate Robert Shiller explained the concept of a bubble:

“It refers to a period of enthusiastic bidding up of prices by a growing group of enthusiastic investors that goes on too long and is carried away by its own momentum. In a bubble, eventually people start saying, ‘Wait a minute…these prices are way too high! What is anyone buying anymore? What could they possibly be thinking?’ And then there’s a correction and a bursting.”