Global Decarbonisation Monthly Report | November

Climate Change ETF Monthly Report: Key Takeaways

October was a month of rotation back to growth. Solar players in particular had a positive month, with Sunpower Corporation (SPWR, up 48.4% in October), Sunrun (RUN, up 31.09%) and Sunnova (NOVA, up 35.28%) all benefiting from the recent turmoil in fossil fuel prices which resulted in spot prices for natural gas quadrupling across Europe and Asia. [1] Enphase (ENPH, up 54.45% in the month) and SolarEdge (SEDG, up 33.73%), two of the dominant players in the inverter space, benefited from similar momentum. 

It was also a bumper month for clean hydrogen, with a proliferation of deals. The headline was the announcement [2] that SK Group would buy at least 500 megawatts of Bloom Energy (BE, up 66.99% in October) fuel cell systems and plans an equity investment of about $500 million. SK Group’s ambitions really came out this month, as they also announced a joint venture with Bloom’s rival Plug Power (PLUG, up 49.84%) to build a South Korean Gigafactory by 2024. This would be Plug Power’s second [3] Gigafactory, and tops a hectic month for the US company, who also closed major deals with Fortescue Future Industries in Australia [4], Phillips 66 in Texas [5],  HevonDrones in Israel [6], Lhyfe in France [7] and an established an eye-catching partnership [8] with Airbus which aims to bring low-carbon flights to commercial customers by 2035 – a major step in the economy wide journey to Net Zero. 

Our software companies like CleanSpark (CLSK, up 74.81% in the month) and Veritone (VERI, up 25.2%) also enjoyed a good month. Particularly notable was the US Department of Justice’s licensing [9] of Veritone’s multi-cloud AI platform across the entire department. Finishing on a different note, there were struggles for players in the plant-based food sector, with Oatly (OTLY, down 14.75%), Tattoed Chef (TTCF, down 2.5%) and Beyond Meat (BYND, down 5.97%). This is despite news that Panda Express will be expanding [10] its partnership with Beyond Meat to place their products in 70 of its US stores, and McDonalds will begin trialing [11] its McPlant burger, already on sale in the UK, the Netherlands, Sweden, Denmark and Austria, in the crucial US market. 

This was the month that we saw Tesla (TSLA, up 31.33%) pass a $1 trillion market cap, a milestone which puts them in an exclusive club [12] alongside Apple, Microsoft, Saudi Aramco, Alphabet and Amazon. After a steady rise throughout 2021, an order [13] of 100,000 units from car rental company Hertz boosted them over the line. It appears [14] that 50,000 of these units will be used by Uber (UBER, down 2.19%), offering high levels of consumer exposure. Fellow EV pioneer BYD (BYD, up 22.06%) also benefited from positive sentiment towards EV adoption. 

President Biden’s infrastructure bill has been “on again, off again”. As of October 29th, both [15] the “Build Back Better Act” and the bipartisan “Infrastructure Investment and Jobs Act”, which make complementary investments in the power grid, clean air, clean water, and electric vehicle infrastructure seem to be on again. On the 28th, the Biden administration [16] released details on a $1.75 trillion Build Back Better package. Several cuts were made to the original $3.5 trillion proposal, but current version still includes significant investments in clean energy policy, namely: $320 billion for clean energy tax credits, $105 billion for resilience investments, $110 billion for clean energy technology, manufacturing, and supply chain investments and incentives, and $20 billion for clean energy procurement (a total of $555 billion). We cannot predict when Biden will sign it to law, but observing the rally in so many of the companies in iClima’s universe it looks like markets expect the Acts to pass both houses of Congress.

Macro Outlook

The weeks leading up to COP26 have been far from smooth sailing. A gas crisis has rocked the world, causing global powers to rekindle [17] their relationship with coal; a leak has exposed [18] major global players including Australia and Japan lobbying to influence the IPCC process; a lone democrat has crippled [19] Joe Biden’s keystone clean energy plans; and, finally, with days left until Glasgow’s opening remarks, the UN published its 2021 Emissions Gap report [20], with damning conclusions for policymakers on their way to Scotland. We are highly concerned by the report, particularly so with the submission of China’s updated NDC which followed a few days later. The updated NDC sees no change [21] to previous targets of peak emissions in 2030 and Net Zero by 2060 and does not stop the domestic burning of coal before 2025 as was hoped. Meanwhile, India, the world’s third largest current emitter, has said it may not submit [22] an updated NDC at all. It is crucially important to situate the UK’s seemingly pioneering Net Zero strategy in the context of these global emissions, for it only includes emissions produced within the borders of the UK. UK consumption will therefore continue driving emissions abroad even while the country ratchets down its territorial emissions. As a quick recap, here are the things we will be looking out for at COP26. Firstly, it is all too easy [23] to set distant targets without concrete steps to reach them. We will be looking for such concrete near term commitments during the conference, particularly for the year 2030 which we see as a crucial milestone. Secondly, as of the UN Emissions Gap report, we will simply be looking for more ambitious plans. Thirdly, the key sticking point from Paris still needs to be ironed out; the infamous Article 6 on carbon markets. Specific points [24] of debate are emissions double counting, the credibility of reductions, ‘share of proceeds’ financing for adaptation, human rights protection and the carryover of previously earned credits. Fourthly, addressing the pledge made in Copenhagen for $100bn of climate finance to flow from the developed to the developing world each year which has to date never been met. [25] This is likely to be crucial in setting the tone of the talks, as previous COPs have been weighed down by friction between developed and developing countries. An interesting subplot for observers will be Brazil’s approach, with congressman Rodrigo Agostinho stating [26] this week that his nation ‘will not be as big of a nuisance this time’ after they ‘sabotaged every discussion’ at COP25.

The green hydrogen sector boomed in October. The growth began as French President Emile Macron unveiled [27] his ‘France 2030’ strategy, which involves a €30 billion investment to ‘re-industrialise’ the country. Within this, he places a strong focus [28] on green hydrogen and nuclear, stating [29] specifically that France would build a low-carbon plane as well as two mega-factories for the production of green hydrogen by 2030. It is likely that the key deals highlighted above stoked confidence in the scalability of the sector. By contrast, plant-based foods struggled this month. There was no sector wide news to explain this trend, but some clear themes. As with much of the economy, these companies were hit by supply chain issues as the pandemic continued to cast its shadow – most notable was a well-publicised pea shortage [30] which was actually driven by drought in Canada. Beyond Meat was certainly hit by such external issues, reporting [31] water damage at one facility, coupled with water shortages at another. While similar issues hit Oatly and the Tattooed Chef, there is also evidence of shifting investor sentiment, with analysts questioning the ability of the former to return [32] profits and the latter to deliver [33] its orders. The lingering question here is the level of demand for plant-based food. While the market has grown [34] 32% in the last year, partly due to people experimenting [35] during Covid induced lockdowns, a recent Bloomberg piece [36] notes that restaurant demand hasn’t expanded as hoped since. We dived into the future of the food system in our latest report [37], concluding that a thriving meat alternative market is an essential component of a successful transition away from high carbon foods. We also note the power of narrative in working with this highly complex and politically charged sector.

Climate Change ETF and Index Performance (As of 31.10.21)

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 31/10/2021. Please note that all performance figures are showing net data.

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