Tag: ESG

Bitfarms’ Bold Move to Acquire Stronghold Digital Mining

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Bitfarms to acquire Stronghold Digital Mining in a $175 million deal
– Merger expands Bitfarms’ U.S. presence and power capacity significantly
– Transaction aims to boost environmental efforts and diversify beyond Bitcoin mining

Bitfarms Ltd. has announced its plans to acquire Stronghold Digital Mining, Inc. in a deal valued at approximately $175 million in a strategic move that’s set to reshape the Bitcoin mining landscape. This bold acquisition, slated to close in the first quarter of 2025, marks a significant milestone in Bitfarms’ growth strategy and signals a new era for both companies in the ever-evolving cryptocurrency sector.

The all-stock transaction will see Stronghold shareholders receive 2.52 Bitfarms shares for each Stronghold share they own, representing a 71% premium based on recent trading prices. This merger is poised to create a powerhouse in the Bitcoin mining industry, combining Bitfarms’ operational expertise with Stronghold’s strategic assets and power generation capabilities.

At the heart of this acquisition is Bitfarms’ ambition to expand and rebalance its energy portfolio. The company aims to increase its presence in the United States dramatically, projecting that nearly 50% of its 950 MW energy capacity will be based in the U.S. by the end of 2025. This move aligns with Bitfarms’ strategic plan to diversify geographically and tap into new power sources.

Stronghold brings to the table 4.0 EH/s of current hashrate, with the potential to scale up to approximately 10 EH/s in 2025 through fleet upgrades. The acquisition also includes two merchant power plants in Pennsylvania, providing 165 MW of nameplate generated power capacity. These facilities are recognized for their environmental benefits, converting mining waste into power and contributing to land reclamation efforts.

Perhaps most intriguing is the transaction’s potential to propel Bitfarms beyond traditional Bitcoin mining. The company sees opportunities to leverage high-performance computing (HPC) and artificial intelligence (AI) capabilities, potentially merging these technologies with their Bitcoin mining operations. This diversification strategy could open new revenue streams and position the combined entity at the forefront of technological innovation in the crypto space.

Environmental considerations play a crucial role in this merger. Stronghold’s reclamation facilities have already rehabilitated thousands of acres of toxic waste sites, addressing historical environmental issues dating back to the 1800s. Furthermore, the potential for carbon capture projects could position Bitfarms as a leader in sustainable cryptocurrency mining practices.

The merger is expected to yield significant synergies, with an estimated $10 million in annual run-rate cost savings. This efficiency boost, coupled with the expanded power capacity and technological capabilities, positions the combined company to weather the cyclical nature of the cryptocurrency markets more effectively.

However, the road ahead is not without challenges. The transaction still requires approval from Stronghold shareholders and various regulatory bodies. Additionally, the volatile nature of cryptocurrency prices and the ever-changing regulatory landscape pose ongoing risks to the industry.

As the crypto mining sector continues to mature and face increased scrutiny over its energy consumption, this merger represents a forward-thinking approach to addressing both economic and environmental concerns. By vertically integrating power generation, expanding into strategic locations, and focusing on sustainable practices, Bitfarms is positioning itself as a leader in the next generation of cryptocurrency mining operations.

In conclusion, the Bitfarms-Stronghold merger is more than just a consolidation of assets; it’s a strategic bet on the future of Bitcoin mining and digital asset infrastructure. As the industry evolves, this union could serve as a blueprint for how cryptocurrency companies can adapt, grow, and contribute positively to both technological advancement and environmental stewardship.

The Hidden Value in Offshore Drilling Stocks

Posted on by slightbourne@noblecapitalmarkets.com

Oil markets and energy stocks often get painted with a broad brush. But within the sector, offshore drilling stocks offer upside that many investors are overlooking. Despite cries of peak oil demand, fundamentals for rig owners point to gains ahead.

The oil services sector has rocketed over 50% higher in the last year, soundly beating the S&P 500. Yet offshore drilling stocks remain unloved. This creates an opportunity for investors willing to take a contrarian bet.

The bull case lies in constrained supply and rapidly rising prices. ESG considerations have limited capital investment in new oil production. But robust demand has returned as pandemic impacts recede. This supply/demand imbalance has sent oil above $80 per barrel.

Day rates for offshore rigs are soaring as utilization rates stick near 90%. However, shipyards are focused on liquefied natural gas, not building fresh drilling ships. That means supply can’t catch up to growing demand in a hurry.

This grants pricing power to rig owners. Valaris, Noble, and Weatherford have emerged from bankruptcy with pristine balance sheets. Meanwhile Transocean boasts the most high-specification rigs, positioning it to profit from climbing day rates.

Yet valuations look disconnected from fundamentals. Offshore drillers trade at up to an 80% discount to replacement value, signaling the market doubts their potential. But conditions point to further gains.

Why Energy Could Shine for Investors

Beyond compelling fundamentals, two key reasons make energy stocks stand out right now:

  1. Inflation hedge – Energy equities have historically held up well during inflationary periods. With prices still running hot, oil stocks may offer protection if high inflation persists.
  2. Contrarian bet – Energy is the most hated sector this year, with heavy net outflows from funds. That sets up a chance to buy low while others are selling.

To be clear, the long-term peak oil argument holds merits. The global energy transition will likely constrain fossil fuel demand over time. But that shift will take decades to play out.

In the meantime, diminished investment and stiff demand creates room for shares like offshore drillers to run higher. For investors willing to make a contrarian bet, the neglected energy space offers rare value.

ESG Sours Sentiment But Oil Remains Key

What about the ESG push away from fossil fuels? Shift is clearly underway. But hydrocarbons still supply 80% of global energy needs. Realistically, oil and gas will remain vital to powering the world for years to come.

Market sentiment has soured on all things oil. But investors should remember that supply/demand, not narrative, ultimately drives commodity prices. Offshore drillers look primed to benefit from that dynamic.

While oil markets face uncertainty beyond the next decade, conditions now point to upside in left-behind niches like offshore drilling stocks. For investors who see value where others only see headwinds, forgotten energy corners may hold diamonds in the rough.

Take a moment to look at Noble Capital Market’s Energy Industry Report by Senior Research Analyst Michael Heim.

Blackrock Checked “No” on 93% of Environmental and Social Proxy Votes

Posted on by phoffman@channelchek.com

Blackrock’s Support for ESG May Have Been Unsustainable

Blackrock, a firm with a reputation for strongly supporting ESG resolutions, having voted yes on 47% of them in 2020, voted down 93% in the past year. The company provided the reasons for shunning 371 proposals out of 399 in its annual Stewardship Report released on August 23rd. With $9.4 trillion under management, investors pay attention to the investment manager. This gives it the power, whether it likes it or not, to create trends as others follow its lead. Should the company’s adjusted position on ESG be taken as something others want to mimic? The reasons given leave that in question.

BlackRock is the world’s largest asset manager. As such, the funds it manages own significant amounts of shares of a broad array of public companies. The Blackrock funds vote on important matters related to the underlying companies if a corporate resolution requires a shareholder vote. Think of the ETF or mutual fund as a trust, and the fund manager, Blackrock, gets to vote on behalf of the assets in the trust. Whereas if an investor owns individual shares of a company, they get to decide and vote themselves, either at a board meeting or more likely, through a proxy statement. Certainly, the amount of control over the decisions of corporations worldwide given to an asset manager of this size is immense.

Each year, the company files a report on its voting during the proxy season. It broke records by voting down 91% of all shareholder proposals and against 93% of those focused on environmental and social issues during the 2023 proxy year. The 7% of ESG proposals that BlackRock supported this year is down sharply from 2022, when BlackRock’s investment stewardship team supported 24% of such proposals, and from 2021, when it supported 47%.

BlackRock’s Investment Stewardship team, makes the voting decisions on both management and shareholder proposals on behalf of BlackRock’s clients. It said the large number of “NO” votes this year is partly related to a huge influx of shareholder proposals. These were described as “poor quality” by the BIS team, either because they were “lacking economic merit,” were “overly prescriptive” and “sought to micromanage a company’s strategy,” or were simply redundant, asking a company to do something it had already done, the Stewardship Report said.

BlackRock’s support for management proposals (not shareholder proposals), which accounted for more than 99% of the roughly 172,000 proposals voted on by BIS, remained high at 88%.

BlackRock’s trend of voting against shareholder proposals is largely in line with other fund managers. The median shareholder support for environmental and social proposals in the U.S. fell sharply from 25% in 2022 to just 15% in the 2023 proxy year.

The firm has backed away from ESG as a term if not a concept. The most recent CEO newsletter did not include the acronym at all, and during a June interview, CEO Larry Fink said he does not use the term, he gave this reason, “I’m not blaming one side or the other, but it has been totally weaponized,” Mr. Fink said. “In my last CEO letter, the phrase ESG was not uttered once, because it’s been unfortunately politicized and weaponized.” He now has a reluctance to have his firm associated with the term ESG after a wave of backlash from both sides of the political spectrum.

In December 2022, Florida’s chief financial officer announced that the state would pull $2 billion worth of assets managed by BlackRock, the largest such divestment by a state opposed to the asset manager’s environmental, social and corporate governance (ESG) policies. BlackRock also lost some of its business of oil rich Texas from its government pension funds because of its ESG policies. Louisiana and Missouri, have also taken steps to divest from BlackRock.

Although not specifically stated in the report, Blackrock fund managers still support the idea that good corporate citizenship could in turn, benefit shareholders. But they will no longer be out front as though ESG factors are the most important criteria. Earlier this month S&P Global Ratings decided it would not provide ESG ratings separate from its credit ratings. Instead, S&P will factor in all of the obligors’ business practices as it relates to risk of non-payment, and assign only a credit rating.

The term has become polarizing as differing political philosophies tend to stand together in support of ESG issues being taken into investment consideration, and other political leanings stand opposed to the not fully developed concept. This has hurt Blackrock.

Republican politicians have been probing Blackrock’s business dealings and asking conservative-leaning state pension funds to divest from the company, which they say has unfairly excluded the traditional energy sector.

On the other hand, environmental activists have lambasted Mr. Fink and his company for not doing enough to stop climate change, protesting in front of BlackRock’s headquarters and heckling senior executives at public speaking engagements. In June Blackrock began providing high-level security to protect Mr. Fink and others in management.

Take Away

When you put your money into most mutual funds, you give away the power that comes with voting on important matters to the underlying shares held by the trust of which you are a part owner. As mutual funds and ETFs have grown, more of the power to guide companies has been handed to the elite running asset management companies.

The growth in popularity in “sustainability” investing caused a rush from investors to these funds, which then needed to place assets in the limited number of companies in the segment. This caused a rise in the share prices of the companies and a rise in the popularity of the funds. Many investors were indifferent to ESG, but not indifferent to making money, they also jumped in. Companies quickly caught on and adjusted their logos to include leaves and the color green, altering some business practices.

While the leadership that Blackrock provides may signal the eventual demise of the term ESG, there has always been, and will always be an interest in putting your money where your heart is. The concept will live, but with Blackrock’s lead, the acronym may transform to something that is less political and less likely to cause protests outside of his home.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.wallstreetmojo.com/shareholder-resolution/

https://www.pionline.com/esg/blackrock-ceo-larry-fink-says-he-no-longer-uses-term-esg

https://www.ft.com/content/06fb1b85-56ba-48cd-b6f6-75f8b8eee7e1

https://www.reuters.com/business/finance/blackrock-continues-lowering-support-environmental-social-proposals-2023-08-23/

https://www.blackrock.com/corporate/insights/investment-stewardship

Standard and Poor’s Abandons ESG Scoring

Posted on by phoffman@channelchek.com

Why S&P Global Ratings Dropped Its Alphanumeric ESG Ratings

As evidence that new concepts need to go through a cycle and find their place, S&P Global Ratings has stopped including environmental, social, and governance (ESG) ratings on its reports. S&P Global Ratings is the credit ratings division of Standard & Poor’s. The division specializes in providing company-sponsored research, analysis, credit ratings, and data to assist investors in evaluating the creditworthiness and risk associated with financial instruments and entities.

In an official press release titled, S&P Global Ratings Update On ESG Credit Indicators released this month. The prominent and perhaps best-known Nationally Recognized Statistical Ratings Organization (NRSRO) revealed its decision to discontinue the publication of new ESG credit indicators, and will not be updating those ESG scores previously determined.

Source: S&P Global Ratings, Dated August 4, 2023

S&P defines ESG credit indicators as “those ESG factors that can materially influence the creditworthiness of a rated entity or issue.” The rating agency said in the release that it had initially begun publishing alphanumeric ESG credit indicators for publicly rated entities in some sectors and asset classes in 2021. “These indicators were intended to illustrate and summarize the relevance of ESG credit factors on our rating analysis through the use of an alphanumerical scale,” the agency added, “They supplemented the narrative paragraphs in our credit rating reports where we describe the impact of ESG credit factors on creditworthiness.”

It has been just two years, and S&P has changed its reporting, if not its methodology. The release explained that after further review the “dedicated analytical narrative paragraphs in our credit rating reports are most effective at providing detail and transparency on ESG credit factors material to our rating analysis, and these will remain integral to our reports.” So there is no separate breakout rating, but to the extent that an ESG related factor could impact creditworthiness, S&P will include the discussion in its write-ups, and it will be reflected when appropriate in an institutions’ security ranking.

S&P Global was clear that the immediately implemented policy does not affect its ESG principles criteria or its research and commentary on ESG-related topics, including the influence that ESG factors may have on a companies ability to pay interest and return principal.

Fitch Ratings, chief credit officer, Richard Hunter told Pension and Investments that: “Fitch believes that there are profound limits to what text disclosures can do for investors monitoring an entire portfolio of hundreds of serviced issuers and bonds. This is the second time in less than amonth that the two NRSROs demonstrated very different methodologies. After Fitch Ratings downgraded U.S. backed Treasuries and other obligations, S&P said they would not unless the U.S. was going to miss a payment.

To round out the big three institutional rating agencies,  Moody’s said in a statement that it “incorporates all risks, including those related to ESG, into its credit ratings when they are material, and also publishes ESG scores on a 1 to 5 scale.”

Take Away

The definitions, overall landscape, and actions taken to support sustainability are evolving.  S&P Global Ratings’ decision to not separately rank obligors is a strategic recalibration in its presentation of ESG factors that may impact an entities ability to pay. It believes the credit factors don’t warrant a separate carve-out within their reports – and that clarity and assessing creditworthiness is best discussed and not boiled down to an alphanumeric rating for use by investors.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.spglobal.com/_assets/documents/ratings/esg_credit_indicators_mr.pdf

https://www.pionline.com/esg/esg-scores-ended-sp

https://www.marketplace.spglobal.com/en/datasets/s-p-global-esg-scores-(171)?

Mismatches Between a Company’s Words and Actions

Posted on by phoffman@channelchek.com

Investors Especially Hate Companies that Say They’re Good Then Behave Badly – Unless the Money is Good

The Big Idea

Stock investors punish companies caught doing something unethical a lot more when these businesses also have a record of portraying themselves as virtuous. This hypocrisy penalty is the main finding of a study we recently published in the Journal of Management.

Companies often espouse their supposed virtue – known as “virtue signaling” – usually with the aim of getting benefits, such as higher sales, positive investor sentiment or better employees. We wanted to know what happens when such companies then do something wrong.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Brian L. Connelly, Professor of Management and Entrepreneurship, Auburn University, Lori Trudell, Assistant Professor of Entrepreneurship, Clemson University.

So we examined corporate communications and media coverage for every company in the Standard & Poor’s 500 to develop a comprehensive database of both virtue signaling and misconduct.

To gauge virtue signaling, we conducted linguistic analysis of each company’s letters to shareholders. This is a form of computer-aided text analysis that identifies and categorizes language to draw inferences. For example, we looked for words and patterns to identify conscientiousness, empathy and integrity and considered how language patterns developed over time. Each company received a score that reflected how much of their corporate communication was devoted to virtue rhetoric.

We then examined over half a million news articles to identify unethical behavior, such as egregious events like a CEO’s being fired for sexual misconduct, but also less severe transgressions, like not treating employees fairly.

Finally, our study considered how shareholders respond. Specifically, we looked at price swings the day after the media initially reported the misbehavior.

We found that share prices fell 1.5% overnight in response to unethical behavior when companies had engaged in lots of virtue signaling, compared with 0.4% for those that did less virtue signaling or none at all. For an average company, that difference amounts to over half a billion dollars in lost value.

Keep in mind, too, that these ethical violations are not uncommon events. About a quarter of companies in our sample engaged in this kind of behavior in any given year. Stated simply, bad things happen, and when they do the stock market will clobber those who do not seem to be walking their talk.

Well, with one critical exception related to a company’s expected future performance. If investors anticipate that a company will perform well in the future, there is no hypocrisy penalty – the consequences of misconduct are the same for those that use virtue signaling and those that do not.

Apparently, shareholders are very concerned about executives who say one thing and do another – unless the company is expected to make lots of money, in which case there is little or no penalty for unethical behavior.

Why it Matters

Many companies, and the CEOs who run them, publicly say they care a lot about their people, the environment and the communities around them, among other virtuous signals.

For example, ice cream maker Ben & Jerry’s proudly declares that it seeks to “advance human rights and dignity, support social and economic justice for historically marginalized communities, and protect and restore the Earth’s natural systems.” At the other end of the political spectrum, restaurant chain Chick-fil-A proclaims that it is “about more than just selling chicken”; its corporate purpose: “To glorify God by being a faithful steward of all that is entrusted to us.”

Whether from the right or the left, this virtue signaling establishes, and implicitly promises adherence to, a set of ethical standards. What happens, though, when behavior does not align with virtuous talk?

Academics have two decidedly different views about how to answer this question. Some contend that virtue signaling buffers companies from the negative ramifications of misconduct. Another perspective suggests that there’s a more severe adverse reaction whenever anyone deviates from expectations. Think, for example, of the special vehemence reserved for the priest who pilfers from the church coffers.

Our study confirms that the latter – a hypocrisy penalty – is more likely what is happening.

What’s Next

We are now exploring different types of shareholders and how they respond to organizational behavior – and misbehavior. For example, social activist funds could be especially put off when companies in which they invest behave badly, whereas the most powerful institutional investors are less likely to be concerned about a mismatch between a company’s words and deeds.

The Reasons for Warren Buffett’s Increased Oil and Gas Appetite

Posted on by phoffman@channelchek.com

Berkshire Hathaway Finds ESG Concerns Are a Plus for Oil and Gas Investments

Warren Buffett’s Berkshire Hathaway is capitalizing on the current commodity price dip to expand its oil and gas sector stake. This year, Berkshire committed $3.3 billion to increase its ownership in a liquefied natural gas export terminal in Maryland. Additionally, it raised its stake in Occidental Petroleum Corp. by 15% and acquired more shares in five Japanese commodity traders. The company is also lobbying for increased financial support for natural gas power plants.

Warren Buffett, the Oracle of Omaha, demonstrated how he earned the “oracle” title during the most uncertain days of the pandemic, by investing heavily in oil and gas. The sector has had impressive returns as it posted record earnings in 2022. The 92-year-old Buffett is not booking the massive gains by selling; instead Buffett is selectively adding to positions.

Are Buffett’s investment moves classic bargain-hunting, with the energy sector possibly undervalued tied to environmental, social, and governance concerns, as well as an anticipation of declining demand for fossil fuels in the future? Based on standard metrics, the energy sector is undervalued. According to data from Bloomberg, energy now trades at the lowest price-to-earnings valuation among all sectors in the S&P 500 Index, at the same time it generates the most cash flow per share. And, as a help to the industry,  Berkshire’s energy division is actively lobbying for a bill that would allocate at least $10 billion to natural gas-fired power plants in Texas to support the state’s grid.

His approach in the sector is obviously deliberate and narrowly targeted. Despite Buffett’s interest in energy, his fossil fuel investments aren’t without nuances. For example, Berkshire remains the third-largest shareholder in Chevron Corp., even after it reduced its stake by about 21% in the first quarter. Each investment in companies like Occidental and Cove Point LNG has unique aspects that position them as valuable assets in the global energy landscape, regardless of the path that any U.S. or global energy transition takes.

Buffett believes that shale, a substantial part of U.S. oil production, is different and even preferred over conventional sources of oil in the Middle East and Russia. One difference is taking shale from the ground and into production can be done more quickly and have a shorter production lifespan. This provides flexibility for operators to adapt to changes in oil demand and prices. At Berkshire’s annual meeting in May, Buffett emphasized making rational decisions about energy production and criticized both extremes in the climate debate.

One of Buffett’s nuanced and targeted energy investments is Cove Point LNG. It not only exports liquefied gas but also has the rare capability to import gas, making it more versatile than other facilities along the Gulf Coast. With rising global LNG demand driven by Europe’s shift away from Russian gas and Asia’s use of gas for power generation, Cove Point’s long-term contracts with buyers, including Tokyo Gas Co. and Sumitomo Corp., make it appealing. Berkshire is Sumitomo’s second-largest shareholder after the Japanese government’s pension fund.

Outside of its stock holdings, Berkshire Hathaway Energy, under the leadership of Buffett’s expected successor Greg Abel, has been performing well. Earnings for the division hit a record high of $3.9 billion in 2022, nearly doubling over five years.

Take Away

The world’s appetite for energy, whether from fossil fuels or renewables, seems insatiable; even amid a global penchant to reduce fossil fuel use, oil demand is expected to continue rising throughout the decade. While environmental concerns have caused some investors to shy away from the energy sector, Buffett’s investments demonstrate his belief that ESG considerations are keeping oil and gas stocks attractively priced. Market participants prioritizing ESG, therefore, presents an opportunity for Berkshire to profit further from its strategic investments in the oil and gas sector.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.barrons.com/livecoverage/berkshire-hathaway-warren-buffett-annual-shareholder-meeting

https://www.bloomberg.com/news/articles/2023-07-25/buffett-lifts-fossil-fuel-bets-as-global-esg-push-mints-bargains

Investment Trends in Both New and Old Energy

Posted on by phoffman@channelchek.com

There is Record Government Funding for Energy, According to a New Report

Governments around the globe spent a lot of money on energy research and development last year, according to data presented in the newly released World Energy Investment 2023 report. As presented, government investment in newer technology hit record highs in 2022. The report lays out how unevenly the money is distributed. It’s no surprise that ever-increasing amounts have been allocated to clean energy technologies. Understanding these allocations can be helpful to both the public and private investors involved or seeking to be involved in an industry that is considered a necessity for life.

The report also shows that investment in energy innovation increased. But cautions that a weaker economy may lead to a reduced ability to fund newer ideas, especially those that rely on private capital. This could possibly create a period where the fast pace of innovation, improvement, and efficiency tapers.

In addition to possible increased economic weakness as a risk, countries are turning their focus closer to home. Many are investing in their own clean energy industries. This also risks decelerating the “clean energy” pace – cooperation between countries helps lubricate development, and poorer countries, potentially with a larger carbon footprint per capita, benefit from the assistance of the global community. The report shows an expectation that sharing of information and technology decreased in 2022, but the G7 and G20 are starting to address the barriers to energy R&D investment and the disparities between countries.

The report also shows that investment in clean energy technologies is significantly outpacing spending on fossil fuels, as affordability and security concerns triggered by the global energy crisis strengthen the momentum behind more sustainable options.

Public spending on all energy research and development is estimated to have grown by $US 44 billion or 10% in 2022, with 80% estimated to have been spent to benefit “clean energy.” As far as non-government investments, listed companies in energy-related sectors, demonstrated a similar rise in R&D budgets in 2022, while early-stage venture capital investment into clean energy start-ups reached a new high of $US 6.7 billion. These solid outcomes came despite higher costs of capital and pervading economic uncertainty.

Early-stage equity funding for energy start-ups had its biggest year ever in 2022, with increases in most clean energy technology areas. Funding for start-ups in CO2 capture, energy efficiency, nuclear and renewables nearly doubled or more than doubled from 2021, which was already much higher than the average of the preceding decade. This type of funding supports technology testing and design and plays a critical role in honing good ideas and adapting them to market opportunities.

Growth-stage funding, which requires more capital but funds less risky innovation, rose by only 1% in 2022 and was very weak in Q1 2023, indicating that the value of growth-stage deals for energy start-ups could fall by nearly 60% in 2023. Prevailing macroeconomic conditions have slowed the amount of capital available and raised the cost of scaling up businesses.

The report indicates that early-stage equity funding for energy start-ups is booming, led by clean mobility and renewables, but later-stage funding is eroding.

Take Away

Overall, the World Energy Investment 2023 report shows that there is an increase of 10% in investment in energy innovation. This increase is both in government-related funding and public/private sector investment. The pace has helped many companies blossom and brought ideas to light, but there are some risks that this may have peaked.

Outside of newer energy solutions, fossil fuels represent about 20% of the capital allocated to energy.

Paul Hoffman

Managing Editor, Channelchek

Shell Oil to Announce Scrapping Targets on Oil and Gas Output  

Posted on by phoffman@channelchek.com

Oil and Gas Will Remain Central to Shell

Shell has looked at its unimpressive returns on renewable energy and the booming profits in its oil and gas divisions and has decided to pivot from its previous course. In an effort to regain investor confidence, Shell’s (SHEL.L) CEO, Wael Sawan, is expected to make a formal announcement of the revised strategic direction of the oil company on June 14, according to an exclusive report in Reuters.

Shifting Gears

Shell’s CEO Sawan, who previously headed the company’s oil, gas, and renewables divisions, is expected in New York next week to formalize the details of his vision, it will include updates on capital allocation, shareholder payouts and “strategic choices we’re making,” according to Sawan.

What is known before the full announcement is that Shell expects it will keep company oil output steady or slightly higher into 2030. This would represent a change from an ongoing deemphasis on oil and gas production that Shell (and other large oil companies) had previously committed themselves to. Shell has been struggling with poor returns and is looking to regain investor confidence.

On June 14th, Sawan will reportedly make the announcement at an investor conference that they are scrapping a target to reduce oil output by 1% to 2% per year. The company is already near its goal for production cuts, which it attained through selling oil assets, including its U.S. shale business.

 Returns from oil and gas typically range between 10% to %20, while those for solar and wind projects tend to be between 5% to 8%.

About Shell’s New CEO

Sawan rose to the level of CEO in January. As the new head, with solid experience in both oil and gas, and the renewable division, vowed to improve Shell’s stock performance as it lagged other energy companies. He now plans to improve company performance by keeping oil and gas central to the company’s business at least through the end of the decade – Sawan says that efforts to shift to low-carbon businesses cannot come at the expense of profits.

Shell’s former CEO, Ben van Beurden introduced the carbon reduction targets and the energy transition strategy. Sawan’s more cautious approach to the energy transition is a reversal of his predecessor’s direction.

Sustainability and Profits

In recent months the company intentionally stalled several sustainability and renewable projects, including those involving offshore wind, hydrogen and biofuels, it pointed to weak returns. Shell is also exiting its European power retail businesses, which had been thought, only a few years ago, as key to its energy transition.

Oil Company Profitability

As with many of its competitors, Shell reported record profits last year, driven mainly by strong oil and gas prices. However, the company produced 20% fewer barrels-per-day over 2019 production. Output is now expected to be flat to up slightly into 2030. New projects would have to meet internal profitability thresholds, and also depend on the success of exploration.

The shift away from further cuts in oil and gas production at Shell is similar to a move by rival BP (BP.L) made earlier in 2023. At BP, CEO Bernard Looney exited further plans to cut oil and gas output by 40% (by 2030).

A true global company, Shell Oil, headquartered in Hague, Netherlands, is a leading supplier of refined petroleum products and remains one of the world’s largest producers of oil and natural gas.

Investor Focused

According to Reuters,  “a key concern for Sawan has been the significantly weaker performance of Shell’s shares since late 2021 compared with its U.S. rivals Exxon Mobil (XOM.N) and Chevron (CVX.N), which both plan to grow fossil fuel output.” Shell’s formal announcement next week is expected to include no change in Shell’s target of becoming a net zero emitter by mid-century as part of the Powering Progress energy transition strategy it announced in 2021, which he has described as “still the right strategy.”

Paul Hoffman

Managing Editor, Channelchek

Sources

Reuters – hell Pivots Back to Oil

Shell Oil – Who We Are

Is Hydrogen the Real Alternative Energy Solution

Posted on by phoffman@channelchek.com

What is Hydrogen, and Can it Really Become a Climate Change Solution?

As the United States and other countries react to achieve a goal of zero-carbon electricity generation by 2035, energy providers are swiftly ramping up renewable resources such as solar and wind. But because these technologies churn out electrons only when the sun shines and the wind blows, a backup from more reliable energy sources would prevent blackouts and brownouts. Currently, plants burning fossil fuels, primarily natural gas, fill in the gaps. Can we stop using fossil fuels now? – Paul Hoffman, Managing Editor, Channelchek

Hydrogen, or H₂, is getting a lot of attention lately as governments in the U.S., Canada and Europe push to cut their greenhouse gas emissions.

But what exactly is H₂, and is it really a clean power source?

I specialize in researching and developing H₂ production techniques. Here are some key facts about this versatile chemical that could play a much larger role in our lives in the future.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Hannes van der Watt, Research Assistant Professor, University of North Dakota.

So, What is Hydrogen?

Hydrogen is the most abundant element in the universe, but because it’s so reactive, it isn’t found on its own in nature. Instead, it is typically bound to other atoms and molecules in water, natural gas, coal and even biological matter like plants and human bodies.

Hydrogen can be isolated, however. And on its own, the H₂ molecule packs a heavy punch as a highly effective energy carrier.

It is already used in industry to manufacture ammonia, methanol and steel and in refining crude oil. As a fuel, it can store energy and reduce emissions from vehicles, including buses and cargo ships.

Hydrogen can also be used to generate electricity with lower greenhouse gas emissions than coal or natural gas power plants. That potential is getting more attention as the U.S. government proposes new rules that would require existing power plants to cut their carbon dioxide emissions.

Because it can be stored, H₂ could help overcome intermittency issues associated with renewable power sources like wind and solar. It can also be blended with natural gas in existing power plants to reduce the plant’s emissions.

Using hydrogen in power plants can reduce carbon dioxide emissions when either blended or alone in specialized turbines, or in fuel cells, which consume H₂ and oxygen, or O₂, to produce electricity, heat and water. But it’s typically not entirely CO₂-free. That’s in part because isolating H₂ from water or natural gas takes a lot of energy.

How is Hydrogen Produced?

There are a few common ways to produce H₂:

Electrolysis can isolate hydrogen by splitting water – H₂O – into H₂ and O₂ using an electric current.

Methane reforming uses steam to split methane, or CH₄, into H₂ and CO₂. Oxygen and steam or CO₂ can also be used for this splitting process.

Gasification transforms hydrocarbon-based materials – including biomass, coal or even municipal waste – into synthesis gas, an H₂-rich gas that can be used as a fuel either on its own or as a precursor for producing chemicals and liquid fuels.

Each has benefits and drawbacks.

Green, Blue, Gray – What Do the Colors Mean?

Hydrogen is often described by colors to indicate how clean, or CO₂-free, it is. The cleanest is green hydrogen.

Green H₂ is produced using electrolysis powered by renewable energy sources, such as wind, solar or hydropower. While green hydrogen is completely CO₂-free, it is costly, at around US$4-$9 per kilogram ($2-$4 per pound) because of the high energy required to split water.

The largest share of hydrogen today is made from natural gas, meaning methane, which is a potent greenhouse gas. IRENA (2020), Green Hydrogen: A guide to policymaking

Other less energy-intensive techniques can produce H₂ at a lower cost, but they still emit greenhouse gases.

Gray H₂ is the most common type of hydrogen. It is made from natural gas through methane reforming. This process releases carbon dioxide into the atmosphere and costs around $1-$2.50 per kilogram (50 cents-$1 per pound).

If gray hydrogen’s CO₂ emissions are captured and locked away so they aren’t released into the atmosphere, it can become blue hydrogen. The costs are higher, at around $1.50-$3 per kilogram (70 cents-$1.50 per pound) to produce, and greenhouse gas emissions can still escape when the natural gas is produced and transported.

Another alternative is turquoise hydrogen, produced using both renewable and nonrenewable resources. Renewable resources provide clean energy to convert methane – CH₄ – into H₂ and solid carbon, rather than that carbon dioxide that must be captured and stored. This type of pyrolysis technology is still new, and is estimated to cost between $1.60 and $2.80 per kilogram (70 cents-$1.30 per pound).

Can We Switch Off the Lights on Fossil Fuels Now?

Over 95% of the H₂ produced in the U.S. today is gray hydrogen made with natural gas, which still emits greenhouse gases.

Whether H₂ can ramp up as a natural gas alternative for the power industry and other uses, such as for transportation, heating and industrial processes, will depend on the availability of low-cost renewable energy for electrolysis to generate green H₂.

It will also depend on the development and expansion of pipelines and other infrastructure to efficiently store, transport and dispense H₂.

Without the infrastructure, H₂ use won’t grow quickly. It’s a modern-day version of “Which came first, the chicken or the egg?” Continued use of fossil fuels for H₂ production could spur investment in H₂ infrastructure, but using fossil fuels releases greenhouse gases.

What Does the Future Hold for Hydrogen?

Although green and blue hydrogen projects are emerging, they are small so far.

Policies like Europe’s greenhouse gas emissions limits and the 2022 U.S. Inflation Reduction Act, which offers tax credits up to $3 per kilogram ($1.36 per pound) of H₂, could help make cleaner hydrogen more competitive.

Hydrogen demand is projected to increase up to two to four times its current level by 2050. For that to be green H₂ would require significant amounts of renewable energy at the same time that new solar, wind and other renewable energy power plants are being built to provide electricity directly to the power sector.

While green hydrogen is a promising trend, it is not the only solution to meeting the world’s energy needs and carbon-free energy goals. A combination of renewable energy sources and clean H₂, including blue, green or turquoise, will likely be necessary to meet the world’s energy needs in a sustainable way.

Is the Best Investment Play for the EV Revolution Mining Companies?

Posted on by phoffman@channelchek.com
Source: Jeep.com

Stellantis Invests in Mine to Satisfy Increasing Demand for Copper

Stellantis is the latest car company to invest in a mining company to help avoid any hiccups on its road to being carbon-free by 2038. The company just announced it acquired a 14.2% stake in McEwen Copper. Partnering with or securing a large stake in a mining company or projects has been a growing trend among car companies as they secure raw materials needed to assemble the next generation of vehicles. Stellantis, the world’s third-largest automaker, owns brands such as Chrysler, Jeep, Fiat, and Peugeot. It says it wants 100% of its European cars and 50% of its US cars and light trucks to be battery electric by 2030.

Source: Koyfin

A Growing Trend

As automakers move to expand EV production, access to an uninterrupted source of raw materials such as lithium, cobalt, nickel, and copper is a concern that needs to be planned for. Some car companies have developed strategies to to directly sourcing raw materials from mines. And others are likely to follow. This year, Tesla (TSLA),  Ford (F), and General Motors (GM) are all expected to be better represented than in the past at the top mining conferences being held over the next two weeks. These include the Global Metals and Mining Conference in South Florida (Feb. 27 – Mar. 1) and the Mineral Exploration & Mining Convention in Toronto (Mar. 5 – Mar. 8).

Because not all investors can make it to Toronto, analysts from Noble Capital Markets will be attending PDAC conference meetings and then interviewing select executives. This will be captured on video for the exclusive benefit of Channelchek subscribers (no cost). Learn more about the Channelchek Takeaway Series at PDAC.

The Stellantis Purchase

The $155 million investment in a project located in Argentina, is expected to make what the press release called, “a major contribution to the company’s plan to become carbon net zero by 2038.”  It represents a 14.2% equity stake in McEwen Copper, a subsidiary of Canadian mining company McEwen Mining (MUX), which owns the Los Azules project in Argentina and the Elder Creek project in Nevada.

The large stake makes Stellantis McEwen Copper’s second-largest shareholder, along with Rio Tinto, through its copper leaching technology venture, Nuton. Los Azules plans to produce 100,000 tons per year of cathode copper at 99.9% purity starting in 2027 and the resources can secure the operation for at least 33 years.

“Stellantis intends to lead the industry with the commitment to be carbon net zero by 2038 – a goal that requires innovation and a complete redefinition of the entire business,” said Carlos Tavares, Stellantis CEO. “We are taking important steps in Argentina and Brazil, with the aim of decarbonizing mobility and ensuring strategic supplies of raw materials necessary for the success of the Company’s global electrification plans,” he said.

“Copper is a strategic raw material for the future of electric mobility, and it is estimated that global demand for the conductive metal will triple in the coming years. By making an investment in one of the top 10 international projects in the development of this commodity, Stellantis should be able to supply some of the projected copper demand starting in 2027,” said Carlos Tavares.

Take Away

The move to electric cars presents a number of opportunities to investors beyond picking which car company perform best, or even survive. Looking forward to areas of increased demand from the EV business, lithium is the mineral spoken about most. But copper is not only important in its use throughout the vehicle, it is also critical to distribute electricity to charging stations. It wouldn’t be a surprise to hear announcements by other car companies that they are also enhancing their vertical integration by partnering with or purchasing mining operations.

Channelchek is a great resource for information on small and microcap mining companies. For an extensive listing of companies involved in copper mining, including description, data, and stock price history,  click here.  

Paul Hoffman

Managing Editor, Channelchek

Source

https://www.stellantis.com/en/news/press-releases/2023/february/stellantis-announces-strategic-copper-investment-in-argentina-reinforcing-commitment-to-reaching-carbon-net-zero-by-2038

https://www.miningweekly.com/article/tesla-gm-among-carmakers-flocking-to-mining-events-amid-battery-metals-scramble-2023-02-27#:~:text=Car%20companies%20are%20making%20inroads,%2C%20deal%2Dhungry%20metals%20producers.https://www.npr.org/2022/03/11/1085670133/automakers-partner-with-mines-as-electric-cars-rely-on-raw-materials-for-batteri#:~:text=Press-,Automakers%20partner%20with%20mines%20as%20electric%20cars%20rely%20on%20raw,sourcing%20raw%20materials%20from%20mines

Has Trading in Carbon Credits Been Profitable in 2022?

Posted on by phoffman@channelchek.com
Image Credit: IPCC (Flickr)

Carbon Credit Market Performance, the Other, Other Market

Has trading in carbon credits increased?

Carbon credits, also known as carbon offsets, are permits developed in 1997 by the United Nations’ Intergovernmental Panel on Climate Change (IPCC). They allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of one ton of carbon dioxide or the equivalent in other greenhouse gases. They exist to create a monetary incentive for companies to reduce their carbon emissions. Those that cannot easily reduce emissions can still operate, however, at a higher financial cost.

As the carbon credit market matured another year, transactions for carbon credits are averaging at the same pace as 2021. But higher prices have been received on projects that are seen as more effective in reducing greenhouse-gas emissions. Some say this is a sign that the market has become more accepted and is functioning with increased comfort and understanding.

Transaction and Price Data

Nearly 172 million credits were purchased and retired by final buyers through Dec. 9th. Exchange-traded volumes were steady at 108 million credits through November, near the same level of 112 million during the same period last year, according to data from Xpansiv, an exchange for carbon offsets.

The price for credits rose to $7.50 during 2022, up from $6.10 last year. However, they are off their highs of the year. This is the result of carbon-credit prices having fallen in sympathy with other markets after traders sold credits in March as rising inflation and energy prices squeezed corporate profits.

The market was valued at $2 billion in 2021, substantially up from about $520 million in 2020. Each credit is equivalent to a ton of carbon dioxide prevented from being released into the atmosphere. Credits can change hands several times before being retired, which means they are removed from circulation and counted against companies’ emissions.

Carbon Neutrality Standards

There was some criticism hurting the market based on the knowledge that the transfer of credits doesn’t reduce carbon emissions because the projects they fund are not effective. This is because it was found that some buyers of the credits could then claim to be carbon neutral despite emitting large amounts of greenhouse gases. While this is how the transfer of carbon credits is intended to prevent excessive greenhouse gases, the understanding still does not sit well with some.

Concerns about standards continue to cloud the unregulated market. This has prompted U.S. regulators and lawmakers to investigate. The Securities and Exchange Commission (SEC) proposed in March of this year designed to make the market more transparent. In October, seven U.S. senators urged the Commodity Futures Trading Commission (CFTC) to “develop qualifying standards for carbon offsets that effectively reduce greenhouse gas emissions.”

What is Impacting Carbon Credit Market and Sectors?

Governments of countries with some of the largest projects halted credit production during 2022. The reduction of supply added to the markets has caused some traders to pause as they determine how events impact their market.

As quoted in The Wall Street Journal, “There’s a perfect storm of activities,” according to Saskia Feast, managing director of global climate solutions at Climate Impact Partners, a carbon consulting and finance firm. “Ultimately, if these initiatives are successful, it will help deliver scale and confidence in the market. But the risk is delaying action and delaying finance because all these things are coming into the market and creating paralysis.”

Some Climate Impact Partners clients have adjusted their offsetting approach and now focus on credits that are created by projects protecting and replenishing forests and newer credits produced in the past few years, according to Ms. Feast.

This is reflected in the data. Average prices for forestry and land-use projects trading on exchanges jumped 55% to nearly $9. Trading volumes for credits created since 2020 jumped while they declined for most older credits, which are viewed as being less rigorous. Nature-based carbon credits, which include those from projects preventing deforestation and reforesting, trade at premiums.

Take Away

Carbon credit trading, while around since 1997, is still discovering itself. It is not yet regulated, and value and price discovery is less effective than other more mature markets.

The early stages of any market is where speculative investors either do extremely well, or more statistically likely, tie up money for long periods of time. If the volume of trading (liquidity) increases, there could be strong upward price momentum.

Carbon-credit issuance seems to value newer and presumably greener projects higher than older, less strict credits. For investors that are not trading credits for business reasons, this would seem to have a decaying effect on credits, even if the overall market is up.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.wsj.com/articles/carbon-credit-investors-start-to-pay-up-for-quality-11671155725?mod=hp_lead_pos11

https://www.investopedia.com/terms/c/carbon_credit.asp

https://trove-research.com/webinar/demystifying-the-use-of-carbon-credits-for-corporate-climate-targets/

Ecosystems Marketplace

xpansiv

The Winners of California’s Floating Wind Turbine Projects

Posted on by phoffman@channelchek.com
Image Credit: Scottish Government (Flickr)

How Do Floating Wind Turbines Work? Five Companies Just Won the First US Leases for Building them off California’s Coast

Northern California has some of the strongest offshore winds in the U.S., with immense potential to produce clean energy. But it also has a problem. Its continental shelf drops off quickly, making building traditional wind turbines directly on the seafloor costly if not impossible.

Once water gets more than about 200 feet deep – roughly the height of an 18-story building – these “monopile” structures are pretty much out of the question.

A solution has emerged that’s being tested in several locations around the world: wind turbines that float.

In California, where drought has put pressure on the hydropower supply, the state is moving forward on a plan to develop the nation’s first floating offshore wind farms. On Dec. 7, 2022, the federal government auctioned off five lease areas about 20 miles off the California coast to companies with plans to develop floating wind farms. The bids were lower than recent leases off the Atlantic coast, where wind farms can be anchored to the seafloor, but still significant, together exceeding US$757 million.

So, how do floating wind farms work?

Three Main Ways to Float a Turbine

A floating wind turbine works just like other wind turbines – wind pushes on the blades, causing the rotor to turn, which drives a generator that creates electricity. But instead of having its tower embedded directly into the ground or the seafloor, a floating wind turbine sits on a platform with mooring lines, such as chains or ropes, that connect to anchors in the seabed below.

These mooring lines hold the turbine in place against the wind and keep it connected to the cable that sends its electricity back to shore.

Most of the stability is provided by the floating platform itself. The trick is to design the platform so the turbine doesn’t tip too far in strong winds or storms.

Three of the common types of floating wind turbine platform. Josh Bauer/NREL

There are three main types of platforms:

A spar buoy platform is a long hollow cylinder that extends downward from the turbine tower. It floats vertically in deep water, weighted with ballast in the bottom of the cylinder to lower its center of gravity. It’s then anchored in place, but with slack lines that allow it to move with the water to avoid damage. Spar buoys have been used by the oil and gas industry for years for offshore operations.

Semisubmersible platforms have large floating hulls that spread out from the tower, also anchored to prevent drifting. Designers have been experimenting with multiple turbines on some of these hulls.

Tension leg platforms have smaller platforms with taut lines running straight to the floor below. These are lighter but more vulnerable to earthquakes or tsunamis because they rely more on the mooring lines and anchors for stability.

Each platform must support the weight of the turbine and remain stable while the turbine operates. It can do this in part because the hollow platform, often made of large steel or concrete structures, provides buoyancy to support the turbine. Since some can be fully assembled in port and towed out for installation, they might be far cheaper than fixed-bottom structures, which require specialty vessels for installation on site.

The University of Maine has been experimenting with a small floating wind turbine, about one-eighth scale, on a semisubmersible platform with RWE, one of the winning bidders.

Floating platforms can support wind turbines that can produce 10 megawatts or more of power – that’s similar in size to other offshore wind turbines and several times larger than the capacity of a typical onshore wind turbine you might see in a field.

Why Do We Need Floating Turbines?

Some of the strongest wind resources are away from shore in locations with hundreds of feet of water below, such as off the U.S. West Coast, the Great Lakes, the Mediterranean Sea and the coast of Japan.

Some of the strongest offshore wind power potential in the U.S. is in areas where the water is too deep for fixed turbines, including off the West Coast. NREL

The U.S. lease areas auctioned off in early December cover about 583 square miles in two regions – one off central California’s Morro Bay and the other near the Oregon state line. The water off California gets deep quickly, so any wind farm that is even a few miles from shore will require floating turbines.

Once built, wind farms in those five areas could provide about 4.6 gigawatts of clean electricity, enough to power 1.5 million homes, according to government estimates. The winning companies suggested they could produce even more power.

But getting actual wind turbines on the water will take time. The winners of the lease auction will undergo a Justice Department anti-trust review and then a long planning, permitting and environmental review process that typically takes several years.

The first five federal lease areas for Pacific coast offshore wind energy development. Bureau of Ocean Energy Management

Globally, several full-scale demonstration projects with floating wind turbines are already operating in Europe and Asia. The Hywind Scotland project became the first commercial-scale offshore floating wind farm in 2017, with five 6-megawatt turbines supported by spar buoys designed by the Norwegian energy company Equinor.

Equinor Wind US had one of the winning bids off Central California. Another winning bidder was RWE Offshore Wind Holdings. RWE operates wind farms in Europe and has three floating wind turbine demonstration projects. The other companies involved – Copenhagen Infrastructure Partners, Invenergy and Ocean Winds – have Atlantic Coast leases or existing offshore wind farms.

While floating offshore wind farms are becoming a commercial technology, there are still technical challenges that need to be solved. The platform motion may cause higher forces on the blades and tower, and more complicated and unsteady aerodynamics. Also, as water depths get very deep, the cost of the mooring lines, anchors and electrical cabling may become very high, so cheaper but still reliable technologies will be needed.

But we can expect to see more offshore turbines supported by floating structures in the near future.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Matthew Lackner, Professor of Mechanical Engineering, UMass Amherst.

Vanguard Drops Net Zero Pledge – Will Others Follow?

Posted on by phoffman@channelchek.com
Image Credit: Jim Surkamp (Flickr)

Will Asset Managers Start Stepping Back from ESG Pledges?

The Net Zero Asset Managers (NAZM) initiative is an international group of 291 asset managers with 66 trillion in combined AUM. They all signed that they are committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. This week the number of asset managers was reduced by one as Vanguard, with $8.1 trillion AUM left the agreement. Vanguard said it made the decision in an effort to better speak for itself on its views and to be certain to balance client’s needs and returns along with climate impact in its funds’ investments.

“Industry initiatives like NZAM can advance constructive dialogue, but they can also create confusion about the views of individual firms. We want to provide greater clarity that Vanguard speaks freely on important matters such as climate risk. After a considerable period of review, we have decided to withdraw from the NZAM in order to provide clarity on what our investors want about the role of index funds and how we think about material risks, including climate-related risk,” said Alyssa Thornton, a spokesperson for Vanguard.

Firms that have signed the NAZM agreement are coming under a lot of pressure from states, pension funds, and others to defend how this is measurably best for the assets left in the care of the manager.

Vanguard, the world’s top mutual fund manager, official statement read, “We have decided to withdraw from NZAM so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks—and to make clear that Vanguard speaks independently on matters of importance to our investors.” Again, the themes are to not be beholden to outside control over its decisions and the company developing its own measurements of material risks from world energy-related moves.

Vanguard, said the change “will not affect our commitment to helping our investors navigate the risks that climate change can pose to their long-term returns.”

Is This Going to Be a Trend?

There is a movement growing with large clients asking investment firms to explain how their energy-investment-related decision is in line with their fiduciary role. Roughly a week ago, Consumers’ Research and 13 state attorneys general asked the Federal Energy Regulatory Commission to review Vanguard’s request to own energy company stocks. “Americans are paying sky-high electricity rates and companies like Vanguard are making the problem worse,” Will Hild, executive director of Consumers’ Research, wrote in an op-ed for the Wall Street Journal.

Another issue Hild has with Vanguard is its meddling with strategic decisions and corporate governance at energy firms. Hild wrote, “With more than $7 trillion in assets under management, the Pennsylvania-based investment firm has publicly committed to pressuring utilities to lower their emissions.” Hild then accused, “Vanguard appears to be not only putting America’s critical infrastructure at risk but violating its agreement only to control utility company shares passively. To protect U.S. consumers and safeguard national security, FERC should investigate the company’s conduct.”

Vanguard isn’t the only firm of the 291 that are being questioned by their largest customers.

Today North Carolina State Treasurer Dale Folwell sent a letter to BlackRock’s board of directors calling for Fink to step aside because the CEO’s “pursuit of a political agenda has gotten in the way of BlackRock’s same fiduciary duty” to its investors. “A focus on ESG is not a focus on returns and could potentially force us to violate our fiduciary duty,” Folwell wrote. North Carolina has approximately $14 billion with Blackrock, and $111 billion under management.

But the fiduciary knife can be cut both ways. Those that are more concerned with any impact that continued fossil-fuel use would have on climate and economies stand behind the argument that it is not in anyone’s best interest not to follow a net zero 2050 goal. “It is unfortunate that political pressure is impacting this crucial economic imperative and attempting to block companies from effectively managing risks — a crucial part of their fiduciary duty,” said Kirsten Snow Spalding, a vice president at sustainability nonprofit Ceres and a NZAM founding partner.

Meanwhile in order to be able to best decipher how to view concepts like net zero investing, the Texas Senate Committee on State Affairs will hold a hearing on December 15 to discuss the impacts of environmental social governance (ESG) policies on state pensions. The panel has asked Vanguard, BlackRock, StateStreet and ISS to appear and answer questions about their ESG practices. Texas previously asked the four firms to turn over documents in August. The Lone Star state had subpoenaed BlackRock to provide additional documents in person after the firm failed to comply with certain aspects of the initial request.

Take Away

All trends, whether investment related or not go through a vetting period, followed by a continued push and pull to seek balance. Firms that have signed on to NAZM can do their own analysis and develop their own plans that best serve their customers. The NZAM may only get in the way. Yet, they don’t have to back-off of caring about and keeping in mind environmental principles, they can just better tailor them to those they are contracted to invest for. An outside global organization is less likely to understand how to be a fiduciary for a Vanguard fund that may be used in the Louisiana state pension system. And with more investment firms acting independently, more and better opportunities will grow from the competition.

ESG, which is in a related family, will also develop and evolve over time. Down the road, investors, analysts, and organizations providing ESG scoring can get revised measures on impact and adjust scoring based on effectiveness.

Paul Hoffman

Managing Editor, Channelchek

Sources

NetZeroAssetMgars (NZAM)

VanguardLeavesNZAM

VanguardPullsOut

VanguardAntiWoke