Markets driven by cheap borrowing, fad-based investing, an abundance of venture capital funding for technology start-ups, and a sheer fear among investors of missing out on the next big thing: it’s pretty much a textbook description of the backdrop to the dotcom crash of 2001, and applies almost to the letter to today’s green energy gold rush.

Investment bubbles require a compelling narrative, and with COP26 on the horizon in Glasgow there’s probably never been a more coercive tale to be told.

There is of course genuine concern about the environment, underlined earlier this month when the head of the UN issued his “code red for humanity” warning after scientists from the organisation’s Intergovernmental Panel on Climate Change (IPCC) issued their stark assessment of the looming climate catastrophe. With global surface temperatures since 1970 having risen faster than in any other 50-year period during the past 2,000 years, they are predicting increasingly extreme heatwaves, droughts and flooding that have wreaked havoc in places such as Haiti, the United States, Germany, Australia and China in recent weeks.

There are also the politicians who may have a sincere desire to tackle climate change, but can be uniformly relied upon to jump on any bandwagon that allows them to deliver rousing speeches about long-term policies that other governments can renege on in the future.

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Whether or not these environmental policies ultimately deliver, they inevitably lead to programmes such as that unveiled earlier this year when Chancellor Rishi Sunak used his Budget speech to set out plans for a new UK infrastructure bank that will be allotted £12 billion of capital in a bid to stimulate at least £40bn worth of “green growth” projects across the public and private sectors. In conjunction with this, a further £15bn will be put into green bonds to help fund the country’s transition to net zero by 2050.

“Our future economy needs investment in green industries across the United Kingdom,” Mr Sunak told the House of Commons. “We need a real commitment to green growth.”

Keen to follow the money pouring from the public purse – and under pressure from investors seeking a more ethical and sustainable home for their savings – fund managers have also been piling into anything that looks like an eco-friendly company. Amid accusations of “greenwashing” across a variety of sectors, the Financial Conduct Authority wrote earlier this month to the UK’s authorised fund managers setting out the regulator’s expectations for ESG (environmental, social and corporate governance) and sustainable investment funds.

Global funds linked to ESG principles took in nearly $350bn (£254.2bn) last year from investors, according to data from Morningstar, compared to $165bn in 2019. In turn, these equity funds channelled more than $230bn of cash into the ESG segment throughout the course of 2020.

HeraldScotland: With COP26 on the horizon in Glasgow, the narrative for green energy investment is compellingWith COP26 on the horizon in Glasgow, the narrative for green energy investment is compelling

That trend has continued into the current year. Research from BloombergNEF shows that new investment in renewable energy products and companies from all sources reached a global total of $174bn (£126.4bn) in the first half of 2021, supported by record levels of public market financing, venture capital and private equity commitments. That 1.8 per cent increase on the same period in 2020 was the highest total recorded in the first half of any year.

“Renewable energy investment has withstood the effects of the global pandemic, in contrast to other sectors of the energy economy where we have seen unprecedented volatility,” BloombergNEF analyst Albert Cheung was quoted as saying.

“However, a 1.8% [year-on-year] increase is nothing to write home about. An immediate acceleration in funding is needed if we are to get on track for global net zero.”

So there appears little on the horizon to stem the stampede into the clean energy sector. With the energy transition accelerating, the safe bet is that investors will continue increasing their exposure to renewables and related areas such as energy storage, hydrogen and so forth.

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In such a scenario the value assigned to these companies will continue to climb and will likely become increasingly disconnected from their potential future earnings, as was the case during the dotcom boom from 1995 to 2000.

During that bull run, the value of the technology-dominated Nasdaq index in the US rose five-fold from less than 1,000 points to a peak of 5,048 in March 2000. The prospects for the commercialisation of the rapidly-expanding internet created a free flow of money into established and start-up internet firms, with investors handing over silly amounts of cash to business that in some cases were years away from either sales or profits. In some instances, they didn’t even have a product or a completed business plan.

Fuelled by overconfidence and sheer speculation, many of these pre-revenue firms went for a public listing regardless, leading to the period when reporting on profits and losses gave way to the desultory EBITDA – earnings before interest, tax, depreciation and amortisation. In other words, “the money we made before paying pretty much any of the bills”.

As is often the case in business, where US exuberance led, markets in other parts of the world – including the UK – followed. The wheels came off when investment capital started drying up in the latter half of 2000, leading to the first international economic shock of the 21st century.

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Without fresh investment to keep them afloat, most of the dotcom start-ups that had no revenues of their own had gone bust by the end of 2001. Though the likes of Amazon and eBay survived, investors too eager to overlook traditional fundamentals were left with bruising losses that took years to recover.

Most people like the idea of a “green” energy future, even if some are less convinced than others about cataclysmic climate crisis. Just as the internet delivered everything and more that was envisioned at the start of this century, today’s world is inexorably headed towards a healthier energy mix.

But there will be difficulties and risks during the journey away from fossil fuels, which itself will be an expensive pilgrimage. Enormous amounts of investment will be required, yet if the clock is ticking down to irreversible environmental crisis, never has it been more important to spend money wisely.

As the world starts to surface from the mire of the Covid pandemic, there is little financial capacity to cope with the fallout from artificially inflated markets and over-hyped eco-friendly technology. In this aspect, both the economy and the environment are aligned, as neither can afford the years of setback should a green bubble emerge and then burst.