Global Decarbonisation Monthly Report | December

Climate Change ETF Monthly Report: Key Takeaways

CLMA was down 3.22% in the month, up 9.88% YTD. For most of November, CLMA saw the continuation of October’s positive trend, until the discovery of the Omicron variant saw the gains turn to losses in a dramatic week of trading, ending in major falls on Black Friday. Zoom Video Communications (ZM, down 23% in November, down 37.3% YTD) did not benefit from spreading concerns over Omicron spreading, a potential rare beneficiary of this news, as did HelloFresh (HLFFF, up 27.7% in the month, up 41.46% YTD). The two had had differing fortunes throughout the month before the upturn, however, with Zoom struggling to maintain its pandemic-induced momentum in the face of strong competition and seemingly loosening restrictions, while HelloFresh announced a higher revenue growth target of 57%-62%. [1]

A number of clean energy players also had impressive months. Hydrogen specialists FuelCell Energy Inc rose in the month (FCEL, up 8.64% in November, down 22.3% YTD) off the back of the ground-breaking US Infrastructure Bill with its $7.5bn provision for zero emissions buses and ferries, given the company’s strives to commercialise hydrogen fuel. [2] Sociedad Química y Minera de Chile S.A. (SQM, up 13.43% in November, up 27.7% UTD) stock has been rising continually this year, the lithium producer benefitting from increasing global electrification. [3] In November, the Chilean government announced it would auction five new lithium development sites for private companies to begin mining and extracting, news which boosted the share price yet further. [4]

Luoyang Glass Company Limited (1108.HK, up 41.09% in November, up 96.1% YTD) similarly provide essential components, this time for solar systems. The stock has rallied since June, with multiple bits of good news emerging over tariffs for US imports. [5] There seems to be uncertainty surrounding China’s regulatory environment and the risk of sudden changes, leading to flows of capital into ‘safer’ strategic sectors such as clean energy. This may be changing, however, as analysis in the last week of the month revealed that China is set to fall well short of its 55-65 GW annual target for installed solar. [6] Korean secondary battery materials manufacturer Ecopro Co (086520.KR, up 27.97% in November, up 113.97% YTD) also had a strong month off the back of strong earnings and rising demand for solar and storage systems in western economies. The stock was further boosted by a partnership with the Korean Development Bank which will support the company’s global expansion. It is likely that momentum from the announcements at COP26 also contributed to much of the growth across the renewable energy sector.

Smart home solutions provider Vivint Smart Home (VVNT up 16.21% in November, down 49.2% YTD) reported 3Q21 revenues increase by 21% alongside gross margins of 44%. Crucially, their attrition rate dropped to a record low of 11%. The company cites increased levels of home working to be behind the success. Chinese EV manufacturer Xpeng Inc (XPEV, up 17.95% in the month, up 28.41% YTD) had a busy month, despite chip shortages leading to disappointing earnings. [7] It seems investors accepted the impact of the supply issues which cost the industry $210bn in what was generally a positive month as the manufacturer announced its first model to be offered to both Chinese and overseas customers. [8] This comes after Xpeng announced the development of a flying car, to be released in 2024, at the end of October.

A noticeable detractor in the month was Swedish oat milk provider Oatly (OTLY, down 30.6% in November, down 47.3% YTD) has struggled since its IPO in May, primarily because of supply chain issues. The share price was further hit this month with the forced recall of 500 vanilla sauce products after claims of metal traces. While sales targets were missed, sales were up by 50% on 3Q21 and demand has kept increasing. In November Oatly opened its first plant in China, that can produce 150 million litres of oat based products per year. [9] The existing plant in Singapore will also be used to support Oatly’s growth in China, a market that can grow by 200% in the next four years. Beyond Meat (BYND, down 29.0% in November, down 43.8% UTD) is another negative case in the plant-based space. Concerns of growing competition and lack of profit mean the company increased and the 3Q21 results showed 12.7% increase in sales, but solid international sales coexisted with US revenue drop. [10] As McDonald’s started to sell Beyond Meat burgers this month, analysts are keen to see the demand for the product in the fast food market, which could improve sales in 2022.

Another detractor was Vestas Wind Systems (VWS.CO, down 20.95% in the month, down 23.6% YTD) as it struggled along with the wider wind energy sector in the face of supply chain blockages, component shortages and increased costs. [11] Their 3Q21 earnings were concordantly disappointing. [12] The company had a busy month despite its troubles, changing CFO, partnering with Maersk to tackle supply chain issues and dealing with a cyber-attack at the end of the month. [13] Docusign Inc (DOCU, down 11.47% in November, up 10.8% YTD) also had a tricky November despite partnerships with Salesforce and Inoapps. [14] If the Omicron variant brings further lockdowns, then the company could start to rebound, as we saw in 2020 when the share price rose from $75 in January to reach $247 in December.

It is very difficult to pin a single conclusion on COP26. For many embedded in finance or policy, it was an unprecedented display of global cooperation, the like of which seemed impossible a decade ago when we were on course for upwards of 4°C of warming. [15] For those on the frontline of the climate crisis, a deal which is estimated to keep us on track for 2.4°C of warming is both a betrayal and a death sentence. [16] In reality, both statements are true and should be acknowledged simultaneously. Week one saw a cascade of commitments, which further entrench the inevitability of the low carbon transition. Week two was more technical, focusing on unresolved issues from COP21 in Paris as well as deadlines and enforcement for new commitments. We sent an analyst to try to unpick all of this. His two reports paint a picture of an increasingly united world, but one that remains beholden to short term logics, particularly in a few major global jurisdictions. [17] The conflict between the ‘developed’ and ‘developing’ worlds, the latter of which is already feeling the impacts of the crisis, is therefore still marked. We analyse below what the conference means going forward.

Please note that all performance figures are showing net data.

Macro Outlook

Digesting COP26, what next? The concept of Net Zero emerged only six years ago, at the twenty first Conference of the Parties in Paris. Since then, its success has been staggering. In 2017, Sweden became the first country to enshrine a Net Zero target in law. In early 2019, the UK became the first G7 nation to do the same, committing to reaching the goal by 2050. By 2019, Net Zero pledges covered 21% of the global economy. Now, only two years later and despite the impact of a global pandemic, that figure has risen to 90%. [18] As we emerge from COP26, 136 countries have a Net Zero target. [19]

Despite this progress, targets set up until now have, broadly speaking, been comfortably made. Taking examples from COP26, the fledgling Beyond Oil and Gas Alliance contains no major oil or gas producers, the Glasgow Leaders’ Declaration on Forests and Land Use allows deforestation to continue for ten years, and the ‘Accelerating the Transition’ declaration on zero emissions cars and vans was not signed by three of the world’s largest automakers as well as the US, Japan and China. [20] More broadly, very few of the Net Zero commitments made contain sufficient concrete policies in the short-medium term to ensure their being met. [21] The UNPRI’s IPR forecast is one initiative which suggests that this will all change in the next few years around the 2023 global stocktake and before the Paris ratchet in 2025. [22]

Happily then, this was in many ways the COP where the private sector stepped up to the plate. There was a major emphasis on the power of innovation, a narrative that we contributed to (see our speech at the conference). [23] There were also major commitments made by the financial sector. Mark Carney, former governor of the Bank of England and now UN Special Envoy for Climate Action and Finance and Finance Advisor for the UK COP presidency, launched the Glasgow Financial Alliance for Net Zero (G-FANZ). The consortium is comprised of 450 financial institutions across 45 different countries with a combined $130 trillion in AUM. The companies have pledged to align their assets with Net Zero by 2050, which leaders of the initiative hope could mean delivery of the $100 trillion plus needed to stay within 1.5°C of warming. A report compiled for the launch suggests that $32 trillion is needed in the next 10 years. [24] To help with this, Carney, also the founder of the Task Force on Climate Related Financial Disclosure (TCFD) launched an initiative to offer much needed clarity to the disparate landscape of climate related disclosure by, ironically, creating yet another acronym. The new International Sustainability Standards Board (ISSB) aligns the reporting standards of the Value Reporting Foundation (comprising the Sustainability Accounting Standards Board and the Integrated Reporting Framework) and the Climate Disclosure Standards Board (an initiative of CDP) in the creation of a standardised climate disclosure metric, which will become mandatory. [25] It has long been accepted that standardised data is key to tackling climate change, and this is a huge step towards unlocking its potential.

Climate Change ETF Performance (As of 30.11.21)

Performance before inception is based on back tested data. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 30/11/21. Please note that all performance figures are showing net data.

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