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ESG is Broadening – SEC Hearing Closes, US Combating Greenwashing to Have
Global Impact
- The Biden Executive Order on Climate Related
Financial Risk, [1] signed 20 May 2021, requires disclosure of
climate-related risk on the US economy to ensure a just transition towards the
country’s net-zero targets for 2050. The Executive Order calls for the Financial Stability Oversight
Council (FSOC) [2] to engage its members, including the SEC, to develop
climate-related financial risk assessment processes. The Executive Order
requires the FSOC to report back to the President by mid-November 2021 on how
climate-related financial risk will be integrated into their policies and
programs including mitigating climate-related financial risk to the financial
system.
- Aligned to this effort, the SEC carried out
public consultations on corporate climate change disclosure and launched a
Climate and ESG Enforcement Task Force. On 23 June 2021, the SEC chair, Gary
Gensler, announced the Commission may require public companies to publish
climate related data. According to CNBC [3],
Gensler has requested staff to investigate specific metrics such as GHGs and
assessing companies’ up against their climate-related commitments. Gensler has
also asked staff to examine how funds are marketing themselves on ESG and wants
more information on human capital disclosure on companies’ interactions with
its employees. The SEC will also be updating the US Treasury and beneficial
ownership rules. [4] The SEC received numerous comments on this topic, including those
in favour of disclosure from companies such as Microsoft and Apple [5]. However,
according to the Wall Street Journal [6],
energy and transportation companies are wary of misunderstanding climate change
disclosure data if there is too much weight on one factor like GHGs. The SEC’s
announcement is a significant contribution towards transparent, accurate,
climate disclosure data and ESG.
- According to Reuters [7], the mandate
for corporate climate disclosure and ESG is expected likely in October. Given
the broad reach of the US markets, the impact of disclosure will be
transboundary. As the US positions itself to be a leader in disclosure, we can
expect other governments to follow suit on this matter.
Half Year in Review – Fast & Furious
The first half of 2021 was an eventful one. News and expectations
regarding vaccination rates and efficacy, combined with the speed of new jobs
being added to the economy, leading to a decrease in unemployment rates. In
March Joe Biden signed a $1.9
trillion Covid stimulus package [8], which translated into consumer confidence and expenditure. US
inflation figures spiked and US CPI increased 0.6%
in May alone. [9] The
US 10 year Treasury started the year at
0.917% yield, dramatically raised to 1.746% by March 31st and closed
June at 1.44%. Commodity prices trended higher in Q2 adding to the Q1 gains. Energy in
particular saw Brent Crude up 44.98% and natural gas up 43.76%. [10] That fuelled a
rotation from value to growth.
For illustrative purposes
only. Past performance is no guarantee of future performance Source: NY
Times [11]
The S&P500 is up 14.4% in the first
half of the year, and Marathon Oil is its best performing stock, having more
than doubled YTD (while down 50% in 2020). [12] In stark contrast, Zoom Communications was up
14.7% in the first half (and was up ca. 400% in 2020). Having said that, the
graph on the left indicates that we may be rotating back towards growth in the
second half of the year. Growth stocks have raised in value since mid-May.
CLMA, our climate change ETF, provides a comprehensive approach to
the relevant decarbonisation solutions, and as such represents a mix of value
and growth names. Some of the top performers in 2020, notably in the EV and
Fuel Cell subsegments, are in the fast growth segment and suffered with the
correction we observed earlier in the year. We closed the first half of the
year with 65.45% of the companies in terms of weight being companies with a
positive share performance (full distribution depicted on the graph above).
In terms of top and bottom performers in CLMA YTD, the specific names
are as follows:
Source of all data: iClima
Research, using S&P Trucost data.
Performance in June –
Rotating Back
iClima Global Decarbonisation Enablers Index™ Performance
|
June
|
12 Month*
|
|
3.14%
|
86.31%
|
Past performance is no guarantee
of future performance.
Source: Bloomberg, HANetf
*TNR
Index, in USD. 12 Month figures based on 30.06.20 -30.06.21.
The underlying index of CLMA closed the first half the year up
9.03%, and up 3.14% in June. In a month where capital rotated back to growth
stories, 70.4% of the weight of CLMA had a positive share performance. Notable names were Workhorse Group (up 77.05%
in June), Jinko Solar Holding (up 53.02% in the month), Li Auto
(up 49.96% in June), Docusign (up 38.66% in the month) and Xpeng
(up 38.25% in June). Source of all data: iClima/ Bloomberg
Past performance is on guarantee of future performance. Source
of all data: iClima/ Bloomberg. Data as of 30.06.21
iClima Global
Decarbonisation Enablers Performance Table (as of 30.06.2021)
|
|
1M
|
3M
|
6M
|
YTD
|
12M
|
SI
|
|
CLMA iClima Global Decarbonisation Enablers UCITS ETF (Acc)
|
3.16%
|
4.57%
|
8.86%
|
8.86%
|
NA
|
21.66%
|
|
CLMA iClima Global Decarbonisation Enablers Index™
|
3.14%
|
4.65%
|
9.03%
|
9.03%
|
86.31%
|
21.95%
|
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 30/06/21
Newsworthy June Performances
Workhorse Group (WKHS, up 77.05% in June down 16.13% YTD)
The last mile delivery truck makes the company a B2B name in the EV space.
Share price has been volatile, partly due to the unsuccessful bid for the US Postal
Service but also because the company owns 10% of shares in Lordstown Motors. In
May the company announced a deal to procure CATL batteries [13] as well as a
product development partnership with EAVX [14]. New players in
the space (Amazon backed Rivian) and Electric Last Mile Solutions are expected
to go public and can become serious competitors to Workhorse. Its main
differentiator could be the truck based electric flying drones for delivery,
the HorseFly.
Jinko Solar Holdings (JKS, up 53.02% in June, down 9.46%
YTD) The Chinese solar module manufacturer has developed a vertically integrated solar product value chain. [15] At the end of last year, it reached an annual capacity of 22 GW of nano wafers,
11 GW of solar cells, and 31 GW for solar modules. Shares spiked after company
released 1Q21 results on June 25th. Volume was up 33.7% year over
year, even though revenue and margins
deteriorated [16], investors were optimistic with prospects, also due to the launch in March of
the ultra-efficient Tiger Pro modules with higher power capacity targeting the
distributed generation market. [17]
Li Auto (LI, up 49.96% in June and up 21.19% YTD) The
six year old Chinese EV maker provided a June delivery update. [18] The company
delivered 7,713 Li Ones in June, a ca. 321% increase year over year, and a ca.
78% increase quarter over quarter. Moreover, the company’s new orders in the
month passed 10,000 units, its record high.
Docusign (DOCU, up 38.66% in June and up 25.76% YTD) The
electronic signature company had a solid share performance following robust
quarter results. The Covid pandemic continues to prompt businesses to digitize,
and the company has been able to expand internationally. International revenue grew 84% year-over-year. [19] The
company announced in June the results for the quarter that ended in April. Revenue increased 58%
year-over-year. [20]
Xpeng (XPEV, up 38.25% in June and up 3.71% YTD) Chinese
EV makers had a good month, as delivery figures have been strong for most
players. Xpeng announced delivery of 6,565 vehicles in June, a 617%
year-over-year, with 30,738 delivered YTD, a 459% increase year-over-year. [21] Prospects of the end of the chip shortage also benefiting Chinese EV
players in June NIO (NIO, up 37.75% in June and up 9.75% YTD) and BYD
(BYD, up 30.67% in June, up 14.27% YTD). [22]
Past performance is no guarantee of future performance.
Source of all data: Bloomberg. Data as of 30.06.21
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