Weekly ESG Highlights: Jan. 19, 2023

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.

Thematic performance

• Thematic sectors mostly lower on the week though outperforming the broader market. Renewables mixed so far with North American names buoyed by policy tailwinds though European stocks lower. Bernstein research highlighted European energy stocks RWE, SSE, and Drax Group as attractive acquisition targets for oil majors looking to expand their renewables presence.

• High beta solar and hydrogen segments uncharacteristically outperformed in face of a down market with hydrogen seeing shallow losses and solar higher. Fits with recent tech outperformance; cybersecurity also performing relatively well following a host of analyst upgrades.

• EV charging firm Volta to be acquired by Shell; EVs mostly lower on the week on worries of a continued price war. Tesla seeing strong demand following price cuts in the US and China; Xpeng slashing prices to compete. Less established manufacturers lower on capital raises Acrimoto, struggling to hold ground against bigger players with margins already squeezed by high battery prices.

Environment

• In the US, the Fed asked the six largest US banks to review the impact climate change could have on their operations with results expected in July. Harvard researchers showed that ExxonMobil’s internal global warming projections have been among the most accurate in the world since the 1970’s.

• Elsewhere, COP28 president and Abu Dhabi oil chief Sultan al-Jaber, whose appointment is backed by John Kerry, called for tripling renewables by 2030. Call comes as Davos faces protests about the role of big oil at the conference and warnings from US Secretary-General about fossil fuel production. Outcry against IRA subsidies continues with UK business secretary calling package protectionist and dangerous.

• 34 companies were expelled from FTSE4Good index for failure to meet rising environmental standards, while Corporate Knights separately recognized the 100 most sustainable companies, with Schnitzer Steel topping the list.

Social and Governance

• Tesla news flow continues: A senior Tesla engineer testified that a video promoting self-driving capabilities was staged at the request of Musk. Securities fraud trial began in San Fran fed court over Musk's tweets about plans to take Tesla private. In Germany, a union alleged unreasonable working hours and fear of speaking out.

• In other news, US Senate panel to hold 24-Jan hearing over ticket industry issues follows outcry over Live Nation Entertainment’s handling of Taylor Swift ticket sales. UK MPs reached a deal on online safety bill; tech execs whose platforms consistently fail to protect children will face criminal charges. An activist group filed and SEC complaint alleging food giant JBS failed to meet green bond-linked emissions targets.

Chart of the Week: Southwest Airlines Takes Reputational Hit, Shares Underperform on Holiday Flight Cancellations

Southwest Airlines (LUV-USA, Figure 1, indexed share price pictured in blue) has sharply lagged the strong performance seen in airlines (S&P 500 airlines index, Figure 1, pictured in white) over the past month. This is attributed to the reputational and revenue hit associated with mass flight cancellations during the holidays, reportedly caused by out-of-date computer systems. For illustration (Figure 2), the Truvalue Labs adjusted Insight Score for “Business Ethics” category shows Southwest Airlines lagging sharply versus peers over the past month. Southwest’s CEO said the company will spend $1B to modernize IT systems while the company expects a $725M - $825M negative impact to lead to a net loss for the fourth quarter. The Department of Transportation is investigating whether cancellations were controllable and if customers were dealt with fairly. The airline’s pilot union is moving towards possible strike, citing the holiday scheduling problems among concerns. Figure 3 shows that relative to peers, the airline has a low Truvalue Labs Adjusted Insight Score for “Labor Practices.”

Figure 1: Southwest Airlines share price (indexed) compared to S&P 500 airlines index (source: FactSet)

Figure 2: Truvalue Labs Adjusted Insight Score for “Business Ethics” category; change over past month; for selected airlines (source: FactSet)

Figure 3: Truvalue Labs Adjusted Insight Score for “Labor Practices” category; level; for selected airlines (source: FactSet)

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