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.
With this week beginning Q2, we take a look at returns for thematic ESG segments. Figure 1 shows a table of broad market, thematic ETF, and thematic company returns so far in 2023. Large cap technology has outperformed the broad market this year while small caps have generally lagged, perhaps hindered by concerns for raising capital. This includes much of the clean tech space where only energy storage (see BATT ETF) kept pace with the S&P 500. In EVs, the large cap outperformance is visible as Tesla is up over 50% YTD while Rivian is down 20%. The solar space has seen bifurcation with US manufacturing plays like First Solar performing very well while residential installers like Enphase Energy have suffered. Hydrogen has been among the worst performing thematic segments with Plug Power among the major decliners.
Figure 1: Year-to-Date Returns and 52-Week Range for Selected Indices, ETFs, and Company Shares
Source: FactSet, data as of 12:40pm on 6-Apr-23
Thematic sectors significantly lagging the overall market this week, continuing the theme of small, high beta names struggling as market turns to defensive stocks. Hydrogen, EVs and related infrastructure are biggest laggards. Hydrogen's challenges illustrated by recent Raymond James downgrade of Bloom Energy citing extended rollout time for electrolyzers; Plug Power also downgraded at Morgan Stanley for execution issues, despite recently announcing record quarter for electrolyzer stack production. In EVs, Tesla's Q1 price cuts led to only minor increase in deliveries, sparking profit margin concerns. Li Auto, Xpeng reported growth in deliveries from prior month and Rivian affirmed production forecast. Follows US Treasury's release of IRA tax credit guidance, which overall was met with confusion. Ford and Stellantis said most of their electric hybrid models will see tax credits halved. GM, recently becoming number two in EV sales behind Tesla and overtaking Ford, expects most of its models to receive the entire credit amount. Concurrently, Ford announced strong Q1 sales, including record 41% growth in EV sales, and plans to increase EV production at manufacturing plants across North America.
Solar is broadly lower for the week, with large US residential name among the worst performers and European names firmer. Energy storage segment as a whole lower, though South Korean names modestly firmer. Wind names also lower despite new US DoE strategy to expand domestic offshore wind to meet its 30 GW by 2030 goal. Transition material names mostly seeing big losses after last week's gains. Decreasing demand led to Chinese lithium producers reportedly setting a price floor and reducing production. One notable research house cut its lithium price forecasts and downgraded several producers in anticipation of negative earnings revisions later this year.
Diversified renewables held up best this week as the utility segment outperformed with support from lower Treasury yields. Exxon Mobil released details of its low-carbon plan, emphasizing hydrogen and carbon capture. Exxon's CEO sees potential for low carbon business to generate hundreds of billions in revenue and eventually outperform its tradition oil and gas in a decade, despite spending only 10% of capital in low-carbon areas, well below peers.
The UK unveiled its energy security plan, which does not yet include tax incentives, instead centering on carbon capture and storage to enable continued North Sea oil and gas exploration. Environmentalists criticized lack of support for clean tech.
The EU will raise the target of energy derived from renewable sources, subject to approval from member states. Increasing the target to 42.5% by 2030 from 32% with another 2.5% possible. The deal comes after negotiations stalled regarding the role of nuclear power with some expecting further protests from France.
Elsewhere, Canada's 2023 budget provides $26B in green tax credits for developing clean tech though the sum is small relative to US IRA. The US declined to support historic resolution for greater emissions reduction in the UN General Assembly. Japan investing $113B to increase hydrogen supply sixfold by 2040. India ordered coal power plants to maximize output ahead of summer. Australia passed tougher emissions reduction law that hits gas investments; requires emissions be reduced, not just offset. Long awaited global guidelines for carbon offsets disappointed experts.
Social and Governance
Regulatory: India startups call for antitrust probe of Google in-app billing fee. Amazon, Microsoft cloud services could face UK antitrust probe for potentially undermining fair competition. Tesla to warn its sentry mode risks violating German privacy laws after lawsuit. Wells Fargo fined $97M for inadequate oversight of compliance risk, enabling apparent violation of US sanctions.
Other: Investors filed resolution calling on Total Energies to do more to cut emissions by 2030. Shell eliminated Global Renewables Chief position; solar, wind operations to be under regional control.
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