By Josh Gregory, CEO and Founder of Sugi
BP, Shell… we all raise an eyebrow when polluted companies claim to have ‘gone green’. Sure, the marketing spiel looks convincing, but if public scandals have taught us anything, it’s to be cynical.
Many investors hold such stocks, either directly or through funds. Those who want their investments to have a positive impact and to align with their values, might be concerned. Is it better to ditch the polluting stocks, or hang on to them?
While I’m not in the business of giving trading advice, I created Sugi to help retail investors filter the greenwashers from the game-changers. Here’s what to consider when avoiding polluting stocks.
- It’s not just about low carbon sectors
Some industries are inherently polluting (e.g. oil and gas, mining, agriculture, shipping). However, the attitudes and activities of companies within these industries vary widely. Some are notable for their failure to acknowledge the environmental problems they cause (e.g. the shipping sector), while others are dedicating significant resources to adjusting their business models and ways of working for a more sustainable future. Most are somewhere in between.
This is known as the ‘transition debate’ and is particularly significant for investors. Until recently, if investors wanted to engage in green investing, they might only focus on low carbon sectors, such as technology, financial services and renewable energy. While these companies are no doubt important and have their place in a green portfolio, attention has recently turned to ‘brown companies’ – those which are traditionally polluting, but taking steps to become greener.
Arguably, supporting and financing the transition of brown companies away from polluting activities is as important in combatting climate change.
- Assess the company’s impact
Researching new investments can involve a bit of detective work. While ESG ratings are important, they aren’t targeted at everyday investors who want to know what a company is currently doing to reduce their environmental footprint. The best source of information for this is via a company impact report or similar information included on the company’s website. However, given this is produced internally, many would rightly question the reliability of such information.
- Question everything
When it comes to impact reporting, question everything. Ask yourself, ‘what is the company actually doing?’
In company reports, a good place to start is to check whether the company is reporting on issues that are important for its sector, or if it’s just focusing on corporate social responsibility generally, e.g. social projects and charity. Examples of issues include:
- An energy company switching to renewable energy sources, investing in renewables infrastructure and reducing the environmental footprint of its existing operations
- Mining companies focusing on the responsible and sustainable extraction and processing of minerals and metals (including those such as lithium, graphite and nickel which are used in low-carbon technologies)
- Agriculture businesses investing in low carbon transport and sustainable land management
- Chemical companies reducing their waste and demonstrating successful waste management practises that protect the environment
It’s important to differentiate between intention and action. Ultimately, it’s what a company does in real terms – not what it promises – that matters. Be sure to check the numbers too – for example, leading oil and gas companies are spending on average only 5% of total capex on projects outside core oil and gas supply, according to the International Energy Agency. Much more is needed to see a real energy transition.
- Don’t forget the 1.5ºC target!
International consensus is now that the global average temperature increase must not exceed 1.5ºC above pre-industrial levels to prevent devastating consequences for vulnerable countries.
Increasingly, whether a company’s activities align with 1.5ºC target is a measure of that company’s green credentials. Perhaps this is an artificial construct. After all, it’s hard to ascertain whether a country’s activity aligns with the target, let alone an individual company’s. But if a company can demonstrate that its activities are aligned with the target, it’s an encouraging sign.
- Check how the company measures its carbon impact
Some companies don’t release data on their emissions, which could be a red flag. However, even when the data is provided, certain emissions may be hidden.
Carbon emissions fall within three ‘scopes’. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, heating and cooling consumed by the company. Scope 3 includes all the other indirect emissions that occur in a company’s value chain (from suppliers to end users), such as raw material processing, product transportation and consumer use.
Quite often a company omits its scope 3 emissions from its carbon data, which distorts the picture. For example, a mining company that was engaged in sustainable extraction and used renewable energy throughout its business would appear to have low carbon emissions based on Scopes 1 and 2. If that company mined coal, however, the extracted coal would be prepared using a highly polluting process, shipped around the world and burned by end-users, as coal is designed to be; it would be indirectly responsible for significant Scope 3 carbon emissions. To exclude Scope 3 and describe the company as ‘green’ would be misleading.
In the end, there’s no clear answer about what to do with polluting stocks. Retail investors can simply do their best in murky waters. With the current focus on green investing, expect to see many more publicly listed companies trying to woo investors with their green credentials. Let’s hope they make a real difference.
We created Sugi to bring some clarity to green investing. For the first time, retail investors can access personalised carbon data about the stocks, funds and ETFs they hold and compare them with industry averages and similar investments. Users link their investment portfolios through Open Finance technology, which enables us to personalise the experience and information. Behind the scenes, the raw impact data is sourced from S&P Trucost, a world leader in environmental data and analysis with the world’s largest impact data set and over 100 environmental key performance indicators.
Through Sugi, retail investors have access to relevant, objective and easy-to-understand green information, making it much easier to engage with green investing.
Analysis: Bubbles, bubbles bound for trouble?
By Marc Jones and Thyagaraju Adinarayan
LONDON (Reuters) – The $6.2 billion-an-hour rise in the value of world stocks since March was dubbed the “mother of all asset bubbles” by BofA analysts last week – and all of a sudden there is a high-pitched hissing sound.
Electric car doyen Tesla, which raced up 750% in last year’s frenzy, skidded into the red for 2021 on Tuesday, hit by a selloff of tech stocks and a plunge in Bitcoin, in which the carmaker recently invested $1.5 billion.
Both are technically in bear markets, defined as down 20% from their latest peaks, although for ultra-volatile Bitcoin which has surged well over 1,000% since March, that was admittedly only a few days ago.
More broadly, Tesla and the bellwether FAAMG quintet – Facebook, Amazon, Apple, Microsoft and Google – have seen half a trillion dollars, or around the equivalent of Austria’s economy, topsliced off their combined value this year.
Meanwhile ten-year U.S. Treasury yields, a key driver of global borrowing costs, have gone up from just under 0.9% to just shy of 1.4% which, while barely visible in a historical context, is nevertheless a 50% increase.
For UniCredit’s Co-Head of Strategy Research Elia Lattuga, the quick rise in benchmark yields represents “a significant risk for equities in general but especially for the parts of market like growth and tech stocks that have seen the sharpest expansion in valuations.”
(GRAPHIC – Bubbly assets: Bitcoin to FAANGs: https://fingfx.thomsonreuters.com/gfx/buzz/dgkvlzayqvb/Pasted%20image%201614091294852.png)
He added that the 80% rise in world stocks since last March’s COVID-19 meltdown – at a pace almost 10 times faster than that seen after the 2008 global financial crisis – had been driven by the well over $20 trillion worth of aid provided by governments and central banks.
Since the start of the year, though, the hopes that vaccines will help overcome the coronavirus and curtail the need for so much support have been building.
Tracking the trend in U.S. Treasuries, Europe’s still deeply negative German Bund yields are set for their biggest monthly jump in three years, and yields in deflation-plagued Japan are at their highest in more than two years.
There are echoes of the ‘taper tantrum’ of 2013, when world stocks saw a number of 3-5 percentage point drops as global yields began to climb.
Stocks did recover, though, and were climbing again when U.S. yields topped 3%, and for SEB investment management’s global head of asset allocation Hans Peterson, any danger signs from the current rise in yields should also come with caveats.
“I don’t see it as a fundamental threat to the markets. But it is up for discussion,” he said.
(GRAPHIC – Up and away: global bond yields on the rise: https://fingfx.thomsonreuters.com/gfx/mkt/qzjpqgobnpx/bondyields2302.png)
This time, however, as nearly 90% of respondents in Deutsche’s Bank most recent money-manager survey concluded, bubbles are building in many market segments.
Bond bubbles, biotech bubbles, Special purpose acquisition companies (SPAC) bubbles, shorting bubbles, space travel ETF bubbles. In fact, you have to search pretty hard to find an asset class that hasn’t been flagged up.
Ray Dalio co-chief investment officer of the worldâ€™s biggest hedge fund, Bridgewater, posted on Monday that around 5% of the top 1,000 U.S. firms were in bubble territory, which while high is well off dot.com boom levels.
Climate change worries also mean anything green has turned red hot.
Tesla’s rise has been a staggering 16,000% over the last decade. It is worth the majority of the world’s other carmakers combined and even with its drop this month, its shares still trade at 163 times this year’s expected earnings.
(GRAPHIC – Meteoric rise of FAANG+TM in last 10 years: https://fingfx.thomsonreuters.com/gfx/buzz/xegvbwqrkpq/Pasted%20image%201614099482523.png)
It’s a multi-storey bandwagon that increasing numbers are climbing on.
GMO’s veteran bubblecaller Jeremy Grantham has warned of a massive rise in SPACs – blank check companies that merge with privately-owned firms specifically to float on the stock market – and initial public offerings (IPOs).
SPAC-led Tesla-wannabes seem to emerge almost daily. S&P’s Global Clean Energy index has nearly doubled in value over the past year, giving it a valuation of 41 times its companiesâ€™ expected earnings.
There were 480 initial public offerings (IPOs) last year, more than the height of dot.com mania. Of that, 248 were SPACs and there have already been over 150 this year according to Spacinsider.com data and plenty with celebrity backers.
Green bonds are roaring too, along with solar, wind and hydrogen stocks. Hydrogen fuel cell manufacturer Plug Power is trading at nearly 65 times its expected revenue having seen its share price surge over 1,000% over the last year.
“These great bubbles are where fortunes are made and lost,” Grantham said recently. “…This bubble will burst in due time, no matter how hard the Fed tries to support it.”
(GRAPHIC – Global stock valuations surge well above long term averages: https://fingfx.thomsonreuters.com/gfx/buzz/ygdvzebllpw/Pasted%20image%201614091756897.png)
(Additional reporting by Dhara Ranasinghe and Elizabeth Howcroft; editing by John Stonestreet)
Oil holds near year-long highs as COVID lockdowns seen easing
By Bozorgmehr Sharafedin
LONDON (Reuters) – Oil prices were steady on Tuesday, trading close to more than year-long highs on signs that global coronavirus restrictions were being eased although concerns about the pace of a U.S. economic recovery kept gains in check.
Brent crude was up 7 cents, or 0.1%, at $65.31 a barrel by 1505 GMT, close to its highest levels since January 2020. U.S. crude fell 14 cents, or 0.2%, to $61.56 a barrel.
Both contracts rose more than $1 earlier before retreating.
“Vaccine news is helping oil, as the likely removal of mobility restrictions over the coming months on the back of vaccine rollouts should further boost the oil demand and price recovery,” UBS oil analyst Giovanni Staunovo said.
But, tempering the upbeat mood, the chair of the U.S. Federal Reserve, Jerome Powell, said the U.S. economic recovery remained “uneven and far from complete” and it would be “some time” before the central bank considered changing policies it had adopted to help the country back to full employment.
Commerzbank analyst Eugen Weinberg said the recent oil price rise was buoyed by upbeat price forecasts from U.S. brokers.
Goldman Sachs expects Brent prices to reach $70 per barrel in the second quarter from the $60 it predicted previously, and $75 in the third quarter from $65 forecast earlier.
Morgan Stanley, which expects Brent to reach $70 in the third quarter, said new COVID-19 cases were falling while “mobility statistics are bottoming out and are starting to improve”.
Bank of America said Brent prices could temporarily spike to $70 per barrel in the second quarter.
In the United States, traffic at the Houston ship channel was slowly returning to normal after last week’s winter storm, although production was not expected to fully restart soon.
Some U.S. shale producers forecast lower oil output in the first quarter.
Stockpiles of U.S. crude oil and refined products likely declined last week, a preliminary Reuters poll showed on Monday, due to the disruption in Texas.
(Reporting by Bozorgmehr Sharafedin in London, additional reporting by Jessica Jaganathan in Singapore; Editing by David Evans and Edmund Blair)
Tesla shares in the red for 2021 as bitcoin selloff weighs
By Julien Ponthus
LONDON (Reuters) – Shares in Tesla were set to plunge into the red for the year on Tuesday, hit by a broad selloff of high-flying technology stocks and the fall of bitcoin, in which the electric carmaker recently invested $1.5 billion.
At 1121 GMT, Tesla was down over 6% in U.S. premarket deals after a 8.5% drop during the previous session.
The firm led by Elon Musk has had a stellar ride since 2020, which it began at about $85 per share, before reaching the $900 mark on Jan. 25.
Currently trading at about $673 in pre-market transactions, the stock has lost 25% from its peak, which is above the 20% level which technically defines a bear market.
Bitcoin has also swung into a bear market, falling from a peak of $58,354 on Feb. 21 to a low of $45,000 earlier on Tuesday.
A Germany-based trader said he was “taking chips off the table” on Tesla as its $1.5 billion investment in the cryptocurrency could “backfire now”.
Among the factors contributing to the rise of the stocks is surging retail and institutional demand for “environmental, social, and governance” (ESG) friendly investments.
“There is a lot of reasons â€“ purely from a sustainability angle â€“ to hold Tesla, it is part of that transformation towards a more sustainable business model,” Valentijn van Nieuwenhuijzen, chief investment officer at asset manager NN IP told Reuters on Friday.
He added however that Elon Musk’s decision to invest in bitcoin could weigh on Tesla’s ESG rating.
The billionaire has been criticised for lauding bitcoin prior to Tesla’s purchase of the cryptocurrency.
His role in encouraging a retail frenzy in the shares of U.S. video game chain GameStop and driving up the price of the meme-based digital currency dogecoin have also come under fire while being acclaimed by a large fan base.
Analysts at Barclays noted that there had been a drop of conversations about the electric car makers in the Reddit’s WallStreetBets forum, which could explain some of the loss of appetite for the stock.
“With only 2-3 total submissions on each of the past several days, we remain below the trend in attention that has come along with big returns jumps in the past”, the analysts said in a note.
Other analysts have also cautioned against investing in the stock which remains one of the most expensive on the S&P 500 index at 163 times its 12-month forward earnings.
While investing in bets against the company’s stock have backfired spectacularly in the past, short interest in Tesla shares still stood at 5.5%, according to Refinitiv data.
(Reporting by Julien Ponthus, Thyagaraju Adinarayan and Karin Strohecker; editing by David Evans)
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