Louise Ward, Investor Relations Director at renewable energy investment company, Low Carbon shares her thoughts on why the finance community should aim for more responsible investments in order to create a low carbon future, and for impressive returns.
As the increasingly popular divestment ‘movement’ continues to gather pace, as well as global attention, investors today need to both look ahead for opportunities for growth, and anticipate the solid returns that come from divesting stocks and equity from the fossil fuel industry and reinvesting into climate solutions such as solar PV and onshore wind. This is even more poignant following the deal made at the Paris Climate Conference (COP21) in December last year, which commits governments to holding the increase in the global average temperature to well below 2 degrees above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 degrees above pre-industrial-levels.
Education is key
A flick through the papers will clearly tell you that divestment is a hot topic that is generating widespread, global, attention. Furthermore, the movement has public backing from high-profile and high net-worth individuals, institutions and political entities such as universities, the Norwegian government and The Rockefeller Foundation. Such an overwhelming level of endorsement and positivity around divestment is hard to ignore, and should not be underestimated as a viable and effective weapon in the global fight against climate change.
This is not just a case of ‘tree-hugging’ – divesting a reinndvesting into climate change solutions can also bring with it tangible financial returns.The government and the energy and investment industries need to do more to educate institutional investors as to the substantial and low-risk returns that can be achieved from climate solution projects such as solar photovoltaic (PV) and onshore wind. Overall, this is a question of raising awareness around these alternative investments,which can both improve the UK’s energy mix as a whole and significantly reduce carbon emissions. If we want to move to a low-carbon economy, it’s evident that we need to invest more heavily into low-carbon assets.
Reliable technologies generate reliable returns
There’s no two ways about it – renewable energy technologies have a strong proven track record that’s crucial to delivering impressive returns and high levels of confidence for the savvy investor. For instance, solar PV panels have been actively generating electricity for at least twenty years, and the scale of solar PV projects and investment in them has increased dramatically during that time – most notably in the past three years where capacity has more than tripled[i]. The result of this increase in confidence can be seen through steps that corporate giants such as Apple and Facebook have taken recently, pledging that they will be investing in solar PV to power their data centres and offices. Onshore wind power is another example of a renewable energy technology in its twentieth year, was described by the Department of Energy and Climate Change (DECC) as ‘the leading individual technology for the generation of electricity from renewable sources during 2014’.[ii] The myth that climate solution technology is too ‘new’ or ‘unproven’ is just that- a myth- and the statistics are there for all to see.
Over the last few months, we have been seeing a dramatic drop in the price of oil, which has only highlighted its volatility. Climate solutions, on the other hand present a strong contrast to this predicament, as they are not volatile to the same extent and their marginal cost of energy production is zero. No other power generation plant (oil or gas) can say the same. And even if investors don’t actually believe in climate change, these investments in climate solutions stand up on their own financially. They are generally long-term, inflation-linked contracts which generate attractive and solid returns.
The majority of climate solution projects are, essentially, infrastructure projects. In fact, the words ‘green’ or ‘renewable’ don’t often have to be mentioned at all, which can be the difference in convincing reluctant investors of their viability as reliable investments. In truth, 40% of electricity demand has been met by renewable energy generation in recent years[iii], which indicate that these technologies are a core, resilient electricity source that are here for the long-term.
The new wave of investors
A recent report – “Investing in a time of Climate Change” –which was commissioned by global investment consultancy firm, Mercer, states that we need institutional investors to take the on role of a ‘climate aware future makers’. This group consists of pioneering investors who understand how climate change is going to affect our world, and who can lead the way in showing more risk-averse investors on how to invest in climate solutions. Future makers realise that our FTSE 100 will not always be dominated by fossil fuel giants such as BP and Shell, and that renewable energy companies will soon make their way into the mainstream market, and stay there. Lastly, a climate aware future maker will seek toapply the use of their personal, individual investments to his/her business life as well. They will see that if they are making such impressive returns from the solar PV installed on their household roof, for example, then there is a huge potential to make money from investing in solar PV projects at scale, in the business world.
A big drawback is that there is currently no legislation here in the UK that is actually motivating investors into investing in climate solutions. In neighbouring France, however, things are changing. The French government is now calling on institutional investors to both disclose and measure the carbon intensity of their investment portfolio, and similar measures are also being taken informally in parts of Scandinavia. I hope to see this call to action and level of engagement imitated by governments in the UK throughout the whole of Europe. If this happens, it will ultimately create a more mainstream and positive climate solution investment environment for future generations, and will assist in initiating more climate aware future makers for the task ahead.
Divestment: a new era
It’s clear that divesting from fossil fuels and reinvesting into climate solutions has its obvious benefits, as ultimately this can help combat the negative effects of climate change whilst generating attractive, stable returns for the most innovative and forward-thinking of institutional investors. These technologies are not a ‘gimmick’ that will pass. Investing in climate solutions presents strong growth opportunities for both now and for future generations. We have some of the sharpest financial brains in the world, right here in the UK, so no ‘problem’ is too large, or should be overlooked because it’s not the status quo. Additionally, global governments have promised to take action following the negotiations at COP21, and so the UK cannot and should not be seen to fall behind on this, but should lead the way for the entire world.Ultimately, we hope to see more investors and financial institutions leading the way in educating the industry on the true benefits of climate solution investment, in the dawn of the era of divestment.
*Previously published in Issue 3
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)
What finding Alice has taught us about the pitfalls of no will
ITV’s latest television drama Finding Alice has been a necessary diversion during these endless winter weeks of lockdown, but it has also provided a useful warning about the far-reaching consequences of a person’s sudden death, particularly when a will has not been put in place.
Following the story of Alice, played by Keeley Hawes, who finds herself in difficulty when her partner of 20-years Harry dies suddenly, the drama brings into sharp focus issues around inheritance tax, intestacy rules and rights for unmarried couples.
Lawyers are hoping the circumstances depicted on the programme will act as a wake-up call to the 50% of UK adults who do not have a will.
Carol Cummins, Private Wealth Team Leader, with national firm Clarke Willmott LLP, said: “Finding Alice is a really useful case study in what not to do if you wish to ensure your family is taken care of following your death.
“Harry and Alice were unmarried and Harry had not made a will which means he died intestate. As a result of this, Alice will inherit nothing as of right, except any assets they might have owned in joint names. In fact, the couple’s daughter, Charlotte, along with a secret son George are entitled to their father’s estate under the intestacy rules. Any assets they do receive are potentially liable to inheritance tax.
“Then there’s the matter of the brand new ‘smart’ house the couple have just moved into. Alice, expects to inherit the property but discovers that in order to protect his assets against his many creditors, Harry gave the
house to his parents just before his death.
“This is a transfer for inheritance tax purposes and the house clearly exceeds the value of the nil rate band which can be given away without a tax bill (£325,000 currently). As the recipients of the gift, Harry’s poor parents face a large IHT liability.
“It seems that Harry did not take any advice before making the gift because a reducing term insurance policy held in trust for his parents could have provided them with the money to pay the tax bill if Harry died within seven years of the gift.
“In not taking the short amount of time it requires to write a will, Harry has negatively impacted on his partner, children and parents – the very people he would have wished to take care of.”
The programme also shows that Harry has left behind a raft of debts, many connected with his building company. This raises a whole host of issues for the administration of the estate. However, Alice will not be liable for any of Harry’s debts and nor would she be if they were married. If the business is a limited liability company, and it has incurred debts it cannot pay, Harry’s estate will not be liable for these unless Harry had given a
personal guarantee in his capacity as a shareholder.
So what advice would Carol have for Alice, if she were a client?
“Alice’s situation is certainly a complicated one and she should definitely be taking the advice of a good lawyer.
“A deed of variation within two years of Harry’s death could, if George and Charlotte agree, re-direct their entitlement to Alice (providing both children are over the age of 18), but inheritance tax would still be payable even if the estate is re-directed to Alice because Alice and Harry were not married.
“It might therefore be advisable to put some of the assets into trust for Alice and the children. This would not reduce the tax due immediately but could help to reduce the tax bill when Alice eventually dies as the assets in trust would not be part of her estate.
“All of this could have been avoided by having a will in place. Harry could have protected his parents by including a provision that his estate should pay the tax on any failed gift and the bill should not fall on his parents.
Instead, Harry’s parents are trying to sell the property to raise funds to pay the tax.
“Once Harry’s parents have paid off the tax, they intend to give the balance of the sale proceeds to Alice. They should consider their own inheritance tax position on this gift, especially as they are not young and have a daughter who may not be happy to find that her parents’ nil rate bands had all been used in a gift to Alice.”
Clarke Willmott has recently launched a new campaign to encourage people to pledge that they will make a will this year. The #GoodWill campaign asks people to take steps to safeguard their family’s future wealth.
The firm is aiming to assist people looking into making a will by developing a free, online ‘Which Will?’ tool that prompts the user to think about what is important to them when making a will and recommends
which wil best meets their needs.
Clarke Willmott is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.
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