##{"id":93376,"date":"2021-05-03T10:25:07","date_gmt":"2021-05-03T00:25:07","guid":{"rendered":"https:\/\/www.fnarena.com\/?p=93376"},"modified":"2021-05-03T10:25:09","modified_gmt":"2021-05-03T00:25:09","slug":"esg-focus-summit-calm-before-the-storm","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2021\/05\/03\/esg-focus-summit-calm-before-the-storm\/","title":{"rendered":"ESG Focus: Summit Calm Before The Storm"},"content":{"rendered":"<p><strong><em>FNArena&#039;s dedicated&nbsp;ESG Focus news section zooms in on matters Environmental, Social &amp; Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:<\/em>&nbsp;<\/strong><br \/><a href=\"https:\/\/www.fnarena.com\/index.php\/financial-news\/daily-financial-news\/category\/esg-focus\/\">https:\/\/www.fnarena.com\/index.php\/financial-news\/daily-financial-news\/category\/esg-focus\/<\/a><\/p>\n<p><u><strong>ESG Focus: Summit Calm Before The Storm<\/strong><\/u><\/p>\n<p>The Climate Summit last week proved an anticlimax but with some interesting takeouts: natural gas has been granted a reprieve and indications were given on the timing of fund flows<\/p>\n<p><strong>-Summit more of an assurance than a hard hitter<br \/>-But the storm is soon to hit &ndash; or should we say flood &ndash; perhaps 2022<br \/>-Methane gains a reprieve<br \/>-Prepare for the battle of the batteries<\/strong><\/p>\n<p>By Sarah Mills<\/p>\n<p>There was a sense of anticlimax from the Earth Day Climate Summit last week.<\/p>\n<p>The summit of the world&rsquo;s leaders topped off what has largely been a quiet year for ESG stocks as investors shifted from growth to value, a trend that is unlikely to show a strong reversal before the third quarter.<\/p>\n<p>Investors expecting a major jolt from the summit would have been disappointed.&nbsp;<\/p>\n<p>Yes, there were some big announcements, but certainly nothing controversial.<\/p>\n<p>Yes, US President Joe Biden announced a -50% to -52% reduction in emissions from 2005 levels by 2030, but those who were expecting a specific targeting of methane emissions would have been disappointed.<\/p>\n<p>In all, the summit appeared to be more of an assurance to markets, and the world, that global commitments remain intact and that it&rsquo;s all steady as she goes.<\/p>\n<p><img decoding=\"async\" class=\"img-responsive maxwidth\" src=\"https:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/Environmental%2C%20Social%20%26%20Governance\/Community-Care-Concept.jpg\" \/><\/p>\n<\/p>\n<p><u>Methane gas emissions enjoy a pass-over<\/u><\/p>\n<p>It is widely acknowledged that methane is a more serious greenhouse gas than coal gas, and that global greenhouse targets depend on its reduction.<\/p>\n<p>But nearly every leader failed to highlight methane in their Summit speeches, with the exception of Russian President Vladmir Putin, who gave the topic lip service but no concrete commitments.<\/p>\n<p>This suggests the industry may be safe from regulation for at least another year.<\/p>\n<p>Given methane is critical to the US&rsquo;s climate plans, Biden did give it a cursory mention, saying the US would cut non-CO2 greenhouse gases, including methane, hydroflurocarbons and &ldquo;other potent short-live pollutants&rdquo;.<\/p>\n<p>But the mention was notably short on specifics.<\/p>\n<p>The Clean Air Task Force is pushing the US to adopt specific oil and gas emission cuts to -65% below its 2012 levels by 2025, which suggest the timeframe still remains tight for the industry, despite the reprieve.<\/p>\n<p><u>The big question: when&rsquo;s the money coming?<\/u><\/p>\n<p>What was interesting was Biden&rsquo;s commitment to a -26% to -28% reduction in US emissions by 2025 (from baseline), which would make the remaining -24% cut in the second half of the decade look like a doddle, opening the potential for further cuts (depending on the transition&rsquo;s emissions consumption).&nbsp;<\/p>\n<p>These commitments give investors a heads-up as to a likely acceleration of funds flowing through the market into green industries in the next few years &ndash; more on that later in the story, where we check out forecasts for green bond issuance.<\/p>\n<p>With only four years of incumbency guaranteed, the Democrats no doubt want to give the transition a strong, early push.<\/p>\n<p>And US Climate Envoy John Kerry has nominated the private sector as the&nbsp;favoured vehicle to progress this agenda.<\/p>\n<p><u>Green and sustainable bond issuance points to 2022 and beyond<\/u><\/p>\n<p>Momentum is building in the investor space with US$37trn in assets under management (AUM) committed to net zero portfolio emissions by 2050 via the Net Zero Asset Managers Initiative.<\/p>\n<p>The United Nations Climate Envoy Mark Carney estimates that up to US$3.5trn will be channelled into the sustainability every year for 30 years, reports the <em>Australian Financial Review<\/em>.<\/p>\n<p>&ldquo;This scale of investment in energy, sustainable energy and sustainable infrastructure needs to double, every year, for the course of the next three decades &ndash; $US3.5 trillion a year, for 30 years,&rdquo; Mr Carney said.<\/p>\n<p>A quick scan of sustainable bond issuance forecasts for 2021 suggests that the bulk of funds are unlikely to land this year, at least not for the next six months.<\/p>\n<p>According to Calvert, green bond issuance for the March quarter was US$111bn, triple that of the covid-depressed March 2020 quarter.<\/p>\n<p>Average forecasts expect issuance could hit a high as US$560bn for 2021 &ndash; half a trillion dollars, but still well short of the US$3.5trn annual flows predicted by the UN (although more can come from rotation out of non-ESG investments).<\/p>\n<p>Moody&rsquo;s Investors Service forecasts sustainable bond issuance will hit US$650bn by year end, double that of two years ago.<\/p>\n<p>Credit Suisse also forecast late last year that ESG stocks and growth stocks&nbsp;would take a breather for 2021 and there appears no sign of this trend reversing.&nbsp;<\/p>\n<p>Instead, the market focus has been on investing in transition inputs such as resources and steel making, and an uptick in value investing.&nbsp;<\/p>\n<p>As a quick guide to this year, Moody&rsquo;s estimates 2021 issuance will be broken into US$375bn of green bonds, US$150bn of social bonds and US$125bn of sustainability.<\/p>\n<p>ING reports that in 2020, use-of-proceeds bonds, which finance projects related to energy, transport, building, water and other sustainability investments, remain&nbsp;the most common form of green bonds issued, comprised 84% of total issuance.<\/p>\n<p>Use of proceeds bonds comprised 87% of all issuance since first offered by the World Bank in 2008.<\/p>\n<p><u>Sustainable business loans &ndash; here come the banks<\/u><\/p>\n<p>Markets are particularly expecting an uptick in sustainability loans\/finance this year.<\/p>\n<p>At a Bloomberg webinar on sustainable finance in April, ANZ Bank Director of Sustainable Finance Tessa Dann predicted the sustainable loan market would gather pace in the second half of 2021.&nbsp;<\/p>\n<p>ANZ was just one of the four major banks represented at the webinar; all of which were addressing the opportunities and risks in the sustainable finance market.<\/p>\n<p>Basically, the banks have their runners on and are ready to go.<\/p>\n<p><u>How much of this largesse will flow to Australia?<\/u><\/p>\n<p>BetaShares held a Climate Change Innovation webinar in April and noted that it&#039;s Climate Innovation ETF ((ERTH)) is currently invested only in international stocks.&nbsp;<\/p>\n<p>It has to date found no large Australian companies worthy of investment.&nbsp;<\/p>\n<p>This probably reflects on Australia&rsquo;s resource-based economy and political climate.<\/p>\n<p>Australia does have some interesting small-cap activity in the area but otherwise the pickings are slim.<\/p>\n<p>But for those investing locally, Aberdeen Standard Investments (ASI) launched its Sustainable Australian Equity Fund in April.&nbsp;&nbsp;<\/p>\n<p>The fund is positioned to take advantage of forecast rises in the cost of fossil fuels and cheaper alternative energy, combined with continued investor pressure to transition.<\/p>\n<p>&ldquo;The Fund is ASI&rsquo;s first sustainable Australian equity product, and seeks to generate strong long-term performance by investing in an all cap, concentrated portfolio of 20 to 35 financially attractive ASX-listed companies,&rdquo; says the press release.<\/p>\n<p>&ldquo;The fund will target a weighted average carbon intensity at least 20% lower than its benchmark, the S&amp;P\/ASX200 Accumulation Index*.&rdquo;<\/p>\n<p><u>Where&rsquo;s the money going?<\/u><\/p>\n<p>Calvert noted that investors in green bonds in the March quarter were seeking assets that combined climate risk with environmental solutions.<\/p>\n<p>BetaShares Climate Innovation&nbsp;webinar also shared the fund manager&#039;s&nbsp;views on the direction of climate funds.<\/p>\n<p>Morgan Stanley&rsquo;s head of wealth management Nathan Lim noted that the world is entering a multi-decade mega-trend &#8211; the road to net zero emissions.<\/p>\n<p>He says that the&nbsp;current investment required to reach net zero is US$1trn to US$2trn a year, and suspects this figure could triple, which would align more closely with UN Mark Carney&rsquo;s forecasts.<\/p>\n<p>Lim expects costs for any company where the major input is carbon will rise from here; and expects ructions to begin soon in the thermal coal supply chain.&nbsp;<\/p>\n<p>(There were some interesting uptakes from China and India at the Climate Summit regarding coal and we will examine these in Part 2 of this series).<\/p>\n<p>Lim also expects that 80% of the world&rsquo;s coal reserves will stay in the ground; as will 50% of gas reserves and 33% of oil.<\/p>\n<p>&ldquo;These risks (stranded assets) will be particularly relevant to banks, insurers and investors,&rdquo; says Lim.<\/p>\n<p>On the flipside, the winners will be green energy, building efficiency, transition agriculture, electrification and conservation.<\/p>\n<p>Other trends under the &ldquo;sustainability&rdquo; heading include sustainable products, water and waste improvements.<\/p>\n<p>Lim expects a big leap in private-sector provision of social housing.&nbsp;<\/p>\n<p>This has been on the drawing board for decades now as part of the ideological shift from government provision of such services to the market.<\/p>\n<p><u>Prepare for the battle of the batteries<\/u><\/p>\n<p>Lim notes that bottlenecks have been identified as the main barrier to electric vehicle uptake and expects the field to be fiercely contested with lithium-ion batteries on the defensive.&nbsp;<\/p>\n<p>He notes that Toyota is already using solid-state batteries which go further, are safer and faster.<\/p>\n<p>This dovetails with the European Union&rsquo;s recent announcement that it would invest tens of billions to promote innovation in non-lithium-ion battery technology.<\/p>\n<p>Lithium-ion batteries are polluting and involve poor labour practices, in violation of the UN Sustainable Development Goals (SDGs).<\/p>\n<p>They also consume copper, which will be needed to fire strong demand from the computing industry in line with the rise of Big Data and the Internet of Things.<\/p>\n<p>The chip industry is shaping up as a geopolitical nightmare, with Taiwan supplying 80% of the world chip market. Investors should expect considerable activity in the sector.<\/p>\n<p>So investors in the lithium-ion industry will need to time their entry and exit well.<\/p>\n<p>Lim also expects the number of cars on the road may decrease.&nbsp;<\/p>\n<p>He predicts that full automation will be a reality by 2040 if not beforehand which means households will no longer need 2 vehicles, given the car can ferry parents to work and return to take children to school, and so on.<\/p>\n<p><u>Democratisation of climate investing in Australia<\/u><\/p>\n<p>On the subject of greenwashing, Mr Lim notes that, unlike the rest of the world, it is difficult to access holding analysis in Australia, which is particularly a problem for passive investors.<\/p>\n<p>But it is likely this will change in the not-too distant future.&nbsp;<\/p>\n<p>He also suggests investors cross-check potential investments against the UN&rsquo;s SDGs given broader social and sustainability goals will be affecting the movement of capital.<\/p>\n<p>Lim also forecasts a continued cumulative flow of money out of non-ESG funds.<\/p>\n<p>In Part 2 of this series, we return to the Climate Summit to examine the real story behind China and India&rsquo;s coal stances; Australia&rsquo;s commitments and the positioning of Australian stocks; and predicted growth in the sovereign bond market in 2021.<\/p>\n<p><strong><em>FNArena&#039;s dedicated&nbsp;ESG Focus news section zooms in on matters Environmental, Social &amp; Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:<\/em>&nbsp;<\/strong><br \/><a href=\"https:\/\/www.fnarena.com\/index.php\/financial-news\/daily-financial-news\/category\/esg-focus\/\">https:\/\/www.fnarena.com\/index.php\/financial-news\/daily-financial-news\/category\/esg-focus\/<\/a><\/p>\n<\/p>\n<p><em>Find out why FNArena subscribers like the service so much: &quot;<a href=\"http:\/\/www.fnarena.com\/index4.cfm?type=dsp_newsitem&amp;n=29EB960D-9DFF-C00E-7F6B464E5D52E250\">Your Feedback (Thank You)<\/a>&quot; &#8211; Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n<p><em>FNArena&nbsp;is proud about its track record and past achievements: <a href=\"https:\/\/www.fnarena.com\/index.php\/2018\/10\/03\/rudis-view-ten-years-on-the-world-is-still-turning\/\">Ten Years On<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Climate Summit last week proved an anticlimax but with some interesting takeouts: natural gas has been granted a reprieve and indications were given on the timing of fund flows<\/p>\n","protected":false},"author":1,"featured_media":93390,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[98],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/93376"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=93376"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/93376\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media\/93390"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=93376"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=93376"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=93376"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}