Global Decarbonisation Monthly Report | June

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The Month in Review - The IEA releases its roadmap, SEC closing hearing on climate change disclosure, activists had a remarkable day, and iClima publishes its full findings on green revenue, PAE & brown revenue

• On May 18th, the International Energy Agency released [1] their 2050 roadmap [2] for the global energy sector. Their findings are still in line with a 50% probability of limiting global warming to 1.5o C. The biggest innovation opportunities relate to the advancement of batteries, hydrogen electrolysers and direct air capture and storage. In their forecast, by 2050 electricity would account for ½ of total energy consumption.
• The SEC public hearing [3] on ESG disclosures is ongoing and the consultation closes on June 13th. The new chair of the SEC told Congress [4] that he expects to propose new rules on climate risk disclosures in the second half of 2021. Clear rules enhancing consistency, disclosures and determining quantifiable metrics could broaden the reach of ESG investing. By the end of last year, from the $51 trillion of assets under professional management in the US, it was estimated that 33% was managed using the three ESG criteria.[5]
• May 26 marked a change in the resistance by oil majors to decarbonise.[6] On that day, ExxonMobil lost a battle against small activist investor Engine No 1. BlackRock, State Street and Vanguard backed three of the small fund’s proposed board candidates, who are to push the company towards a cleaner strategy. On the same day, a court in the Netherlands ordered Royal Dutch Shell to reduce emissions by 45% from 2019 levels by 2030. Lastly, still on the same day, at Chevron’s AGM 61% of shareholders voted for the company to cut its Scope 3 emissions.
• In May, iClima published two large research pieces on how companies in our climate change ETF aligned with the 17 UN Social Development Goals (SDGs), as well as all ranges of green revenue, brown revenue and Potential Avoided Emissions for the current 157 companies in CLMA. The summary of the findings and the links to the articles as follows:

SDG Alignment

To assess how CLMA companies are aligned with the SDGs we applied the same approach we use for measuring decarbonisation impact - aligning a company’s revenue to the goals. Using iClima’s definitions of green products and associated revenues, we mapped companies’ revenues from green activities with the 17 SDG targets, focusing on direct impact only. The companies in our benchmark particularly contribute by providing innovative low-carbon products and services that serve as alternatives to those with higher emissions. That is why we believe 100% of our companies contribute to SDG 13 (Climate Action). We conclude that the current 157 companies in the iClima Decarbonisation index are also aligned with 8 other goals, namely: SDG 2 (Zero Hunger), SDG 6 (Clean Water), SDG 7 (Affordable and Clean Energy, the second biggest alignment, with 68% of companies), SDG 9 (Industry, Innovation and Infrastructure), SDG 11 (Sustainable Cities and Communities), SDG 12 (Responsible Consumption and Production), SDG 15 (Life on Land) and SDG 17 (Partnerships for the Goals).

Figure 1: Number of Constituents & Specific SDG Alignment

Source: iClima Research, full report here.

Green Revenue, Brown Revenue & Potential Avoided Emissions (PAE)

Green revenue is defined as the total or percentage of sales that are derived from environmentally sustainable solutions that enable avoided emissions. Brown revenue in turn is the percentage of sales derived from coal and oil power generation, natural gas power generation & distribution, and activities associated with fossil fuels. In addition, to ensure that companies are not engaged in environmentally harmful and controversial activities, we undertake a negative screening exercise to 1) identify and avoid companies that produce alcohol, tobacco, and armament; and 2) identify and exclude companies with unacceptable level of activities that directly contribute to greenhouse gas emissions and climate change. In the current 157 companies in CLMA, 72% have green revenue above 50%, 71% have no “contamination” of brown revenue and for 49% of the companies we estimate PAE in 2020 to avoid more than 3 Megatons of CO2e.

Figure 2: Key Metrics Representation in CLMA

Definitions

Source: iClima Research, full table with data, and full article here.

Performance Review

iClima Global Decarbonisation Enablers Index Performance

Past performance is no guarantee of future performance. Source: Bloomberg, HANetf *TNR Index, in USD. 12 Month figures based on 31.05.20 -31.05.21.

The underlying index of CLMA closed the fifth month of the year up 0.24%, YTD now up 5.72%. In May the S&P500 was up 0.55% (11.93% up YTD), while Down Jones was up 1.93% (12.82% up YTD).[7] The correction that hit many of the growth names, particularly in the EV and Fuel Cell segments, has paused. Many of the shares that are negative in the year but had a positive month are growth names such as Blink Charging (up 21.8% in the month, down 7.2% YTD), Plug Power (up 40.69% in May, down 4.36% YTD), Li Auto (up 50.22% in May, down 4.86% YTD), Ballard Power Systems (up 17.6% in the month, down 22.61% YTD). Conversely, some of CLMA’s best performing YTD names that are on the value side had a bad month, such as Siemens AG (down 5.58% in May, up 15.54% YTD), AO Smith Corp (down 3.78% in May, up 24.84% YTD), Johnson Matthey PLC (down 1.98% in May, up 33.44% YTD), and Waste Connection (down 2.47% in May, up 17.228% YTD). Source of all data: iClima/ Bloomberg

Past performance is on guarantee of future performance. Source of all data: iClima/ Bloomberg. Data as of 31.05.21

iClima Global Decarbonisation Enablers Performance (As of 31.05.21)

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such a strategy would have been. 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 31/05/21

Newsworthy Share Performance – Highlighting Some of the Extreme Cases

Applied Materials (AMAT, up 1.28% in May, up 60.06% YTD) One of CLMA’s Semiconductor Device companies, the CA based company is benefiting [8] from a shortage in semiconductors. Applied Material’s main decarbonisation product line is their solar technology (wafer inspection, metrology, screen printing for example) but a shortage in chips, due to a supply crunch partly Covid driven, has affected the automotive industry and the more complex needs of consumer electronics clients. In a May 20th presentation on 2Q21 results,[9] the company reported a 55% YoY revenue growth in the semiconductor system revenue line.

Meyer Burger Technology (MYBUF, up 13.11% in May and 48.22% YTD) The Renewable Energy Equipment constituent produces high efficiency solar cells and modules using “Swiss Technology made in Germany” [10] offering higher quality and performance for the premium rooftop and utility scale solar market. Share performance is reflecting the unveiling of a high performance [11] and aesthetically appealing solar rooftop product line and the inauguration [12] of a new plant in Freiberg (Germany) producing lead free and fully recyclable solar modules.

Compagnie de Saint Gobain (CODYY, up 1.91% in May and 47.43% YTD) The French multinational part of the Sustainable Buildings subsegment has over 75% of its sales [13] derived from the construction market, being a leader on insulation and sustainable timber solutions. The company's sales momentum continued in May and management indicated that operating margins in first half of 2021 should exceed the record level of the previous semester.[14]

Generac Holdings (GNRC, up 4.99% in May and 44.55% YTD) The American producer of home backup generators, part of CLMA’s Electric Systems segment, is benefiting from surge in sales after the February power outage in Texas, the positioning of its products as enabling energy transition, the increase in sales of gas generators and a shift towards more software & systems (as opposed to pure equipment sales).[15] We flag that we have been engaging with their IR to better define the percentage of sales derived from diesel generators.

Workhorse Group (WKHS, down 17.7%% in May down 14.56% YTD) The last mile delivery truck makes the company a B2B name in the EV space. Share price has been volatile with 52 week range between $3.4 and $42.96 partly due to the unsuccessful bid [16] for the US Postal Service but also because the company owns 10% of shares in Lordstown Motors (the also OH based electric pick up manufacturer, not in CLMA as the company is not revenue generating) who has declared [17] that its $587 million cash position in March may not be enough to finance the launch of its Endurence product. The stock surged 59% on June 3rd [18] on what some journals refer to be a case of “meme stock”.

Nordex (NDX1.DE, down 15% in May and down 24.05% YTD) German wind turbine manufacturer reported is 1Q21 results in the second week of May. Sales increased to €1.25 Billion, a 29.7% growth over previous quarter, however, the results translated into an EBITDA margin of just 0.8% attributable in part to COVID related effects. In terms of installations, the company delivered 356 wind turbines in 1Q21 across 20 countries, with a total capacity of 1,400 MW.[19]

Siemens Gamesa (SGRE.MC, down 7% in May and down 25.72% YTD) The Spanish-German wind turbine manufacturer reported sales for the quarter that ended in March at €2.33 billion, a 6% YoY growth.[20] Its EBIT margin increased from 1.8% a year ago to 4.8%. In the third week of the month the Spanish stock market regulator suspended trading on the stock, as it was reported that Siemens AG had hired banks to conduct an analysis of strategic options, including a potential takeover and subsequential delisting of Siemens Gamesa.[21]

Vivint Smart Home (VVNT, up 41% in May, down 29.7% YTD) The US maker of smart controls and smart thermostats in mid May reported its 1Q21 results. Revenue reached $343.3 million representing [22] a 13.2% versus 1Q20, with new subscribers growing by 20.1% as 60,000 new smart home subscribers were added. Market reacted favourably to the results and shares jumped over 28% the trading day after the announcement.

Enphase Energy (ENPH, up 15% in May, down 21.9% YTD) The CA based supplier of semiconductor based micro inverters has partially reverted the share price loss in the year as market seems to expect the company to outperform the EPS growth guidance of over 150% EPS growth over year ago quarter.[23] 

To learn more about our climate change ETF, please visit the fund page here