Yesterday’s Financial Times had a curious article, one with no immediate investment implications, but one that I thought was noteworthy anyway. EU property/casualty insurance companies have decided they will no longer offer insurance coverage for new coal mining projects. Their rationale is that ultimately they will be the ones paying out claims for damage that results from using this heavily polluting fuel. So it makes no sense to make their situation worse by supporting the projects that lead to big loss payouts.
When I was looking for my first stock market job, I asked an interviewer why he had become a securities analyst and what was most satisfying for him in his work. He replied that the best part of the job was in influencing investors through his reports to apply high price-earnings multiples to socially responsible companies (thereby making it easier for them to raise new investment capital), and low multiples to dishonest or socially irresponsible ones (making fund-raising harder).
Performing an important social service wasn’t what I’d expected to hear. But over the years I’ve come to believe that, despite the cynical persona most professional investors adopt, very many–me included–think the way my old interviewer did. This is one reason that tobacco companies, for example, are rarely market stars.
There may be enough problems with fossil fuels that low multiples are already permanently baked into the cake …and that coal will continue to be a fertile ground for value investing. I don’t think so, but who knows.
The more interesting question to me, though, is whether this thinking is being/will be applied to firms like Facebook, Google or Apple–serving as invisible anchors to the rise of their stocks.