Renewables Underperformance and Other ESG News This Week

FactSet StreetAccount publishes regular company-level and summary-style ESG news. Below is our recap of key ESG developments and insights over the past week.

S&P 500 Utilities index (blue) underperformed sharply in the past week as two-year Treasury yields (red) have risen, as shown in Figure 1. Stronger economic data has underpinned expectations for a higher terminal Fed funds rate. Meanwhile, Figure 2 shows that mixed renewables operators and investment companies have mostly underperformed the overall Utilities sector (blue).

Figure 1: Utilities Sold Off as Two-Year Treasury Yields Moved Higher Over the Past Week

Source: FactSet

Figure 2: Select Renewable Company Share Price Indices Versus S&P 500 Utilities

Source: FactSet

Thematic Performance

• Thematic sectors mostly lower on the week with diversified renewables (and Utilities more broadly) lagging as Treasury yields rise. EVs lower so far this week as Tesla's "master plan" underwhelmed investors. The EV maker outlined plans to reduce or eliminate use of rare ore and silicon-carbide, causing rare earth miners and semiconductor manufacturers to slump. Rivian and Lucid both slid on earnings and outlook whereas Volvo-owned Polestar halved annual losses and announced plans to ramp up production.

• Amid falling lithium prices, furthered by battery maker CATL's discounts to Chinese OEMs, Australian and US miners saw a boost from China disruption as authorities cracked down on illegal mining activity. China’s top lithium production hub faces closures amid investigations of environment infringements; could impact nearly one-tenth of global lithium supply.

• First Solar up big week to date on better-than-expected earnings, highlighting impact of IRA and several multi-GW orders; analysts note stock is the only major US player immune to US anti-forced labor laws. Wind energy players were led lower by TPI Composites on senior note offering.

Environment

• The EU released a deal to establish a standard for green bonds to tamp down on greenwashing; a draft plan also provides for penalties among companies that inflate their environmental claims. Germany and Italy are challenging the EU’s planned phase-out of ICE vehicles; the nations have threatened to block the ban unless exemptions are made for e-fuels. Comes as an IEA report warns of the environmental impact of SUVs. Recent study finds G20 plastic consumption could nearly double by 2050; aggressive taxes on single-use plastics is necessary to reach “peak plastic.”

• The US nominated ex-Mastercard chief Ajay Banga for World Bank president due to his experience mobilizing financing for climate change; activists decried the choice due to his corporate ties. John Kerry will remain the US climate envoy at least through COP28. In Mexico, Pemex increased gas flaring at top field, despite pledges to stop.

• In Asia, China and India continue to pursue expansion of coal-powered energy, despite targets to phase out the fuel. Coal plant approvals in China reached highest levels in seven years and the Aus. Energy Minister ruled out a ban on new coal mines. India plans to triple its fastest-growing coal mine ahead of anticipated summer energy crunch.

Social and Governance

• Following Norfolk Southern train derailment, House Dems introduced a bill to tighten regulations for trains with hazardous materials. A preliminary NTSB report pointed to several potential systemic safety issues; blame initially attributed to overheated wheel bearing. The EPA is struggling to find disposal sites for the derailment waste and paused removal.

• Violations of child labor laws rose 37% in 2022 in US, according to the Dept. of Labor; staff shortages drove companies to hire overlooked workers, including teenagers and underaged migrants. The Biden administration created an interagency task force on child labor and is pushing for heavier penalties for violations.

• Notable regulatory action this week include the EU’s narrowing focus in its Apple antitrust investigation, focusing on apps restricted from sharing alternative subscription options. The US FTC is expected to challenge Intercontinental Exchange's $13B takeover of Black Knight. China Renaissance said its missing founder Bao Fan is cooperating with investigation. The DOJ reportedly to file antitrust lawsuit to block Adobe's acquisition of Figma. And Boeing temporarily halted 787 Dreamliner deliveries for further analysis on fuselage component.

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