Climate policy stocks are up 78% this year as governments step up ambitions
Head of Equity Strategy
Summary: In the last two weeks the EU Commission, ECB and China have all been out with positive climate related policy actions and intentions which underscore the huge political support for the green transition to a less carbon intensive economy. Investors have also noticed this sending our climate related basket of 56 stocks up by 78% this year compared to only 5% for global equities.
Our basket of climate policy stocks is up 78% this year in USD on an equal-weight basis compared to 5% for the MSCI ACWI Index. Since the basket is not an index there is no official point-in-time date we can rely on as such our basket naturally has a survivorship bias and thus the long-term performance is impacted by this. Also, previous performance is not an indicator for future performance. But the strong performance this year highlights the huge focus on climate related stocks both from investors but also governments. Last week the EU Commission announced an ambitious 2030 Climate Target Plan which targets a 55% reduction in net greenhouse gas (GHG) emissions by 2030. The EU Commission is linking the ambitious plan with the need for massive fiscal spending to offset the decline in economic activity imposed by the lockdowns related to the COVID-19 pandemic.
This week the ECB followed up announcing that it will accept sustainability-linked bonds as collateral as part of their bond purchase programmes. Read Christopher Dembik’s research note on what the ECB’s decision means as green has suddenly become the new black. Yesterday Althea Spinozzi stayed with the “green” theme writing a research note on green bonds and how they could be attractive for investors.
Finally, China announced a carbon neutrality plan aiming for peak carbon emissions by 2030 before reaching carbon neutrality in 2060. This is an important signal because it puts pressure on the United States to also step up on climate change through active policies.
Back in early January 2020 we defined green stocks as the next mega trend in equity markets over the coming decades. The impact from climate change will make the COVID-19 pandemic, although serious and enormous in scale, look small in the bigger picture when this century is judged in the history books. In our view some of the largest companies in the world over the coming decades will be found among the companies that come up with effective solutions to clear air, carbon capture, hydrogen production, water treatment, water desalination, renewable energy, battery storage, mobility in urban cities, electric vehicles, fuel cells etc.
The table below shows an inspirational list of stocks with exposure to the climate theme and future policy implementation regarding the environment. The list consists of 56 stocks across themes such battery & energy storage, bioplastic, environmental services, fuel cells, hydro, mobility & electric vehicles, nuclear power, solar, wind and plant-based food. On list also contains the ECX carbon emission future which is a contract that prices carbon emissions in the EU. Given the new EU Commission target for carbon reductions the expectation is that carbon emission prices could rise as direct consequence of policy implementation as higher carbon emission prices is an incentive factor in investment decisions.
|Name||Ticker||Theme||Market cap||Revenue||Net income||EV/EBITDA||EV/Sales||YTD (%)||5yr (%)|
|Panasonic||6752:xtks||Battery & energy storage||21,047||68,904||2,076||4.9||0.4||-8.4||-18.9|
|Ganfeng Lithium||002460:xsec||Battery & energy storage||9,024||760||52||123.3||14.0||54.5||524.2|
|Varta||VAR1:xetr||Battery & energy storage||5,531||406||56||34.3||6.8||-1.6||NA|
|EnerSys||ENS:xnys||Battery & energy storage||2,688||3,088||137||11.9||1.2||-14.6||30.5|
|GS Yuasa||6674:xtks||Battery & energy storage||1,408||3,639||126||5.6||0.6||-20.2||-10.7|
|Alfen||ALFEN:xams||Battery & energy storage||1,325||160||6||58.8||2.4||225.4||NA|
|Symphony Environmental Technologies||SYM:xlon||Bioplastic||62||11||-1||NA||2.7||322.2||307.3|
|Good Natured Products (**)||GDNP:xtsx||Bioplastic||13||8||-3||NA||2.7||-19.4||-21.6|
|Biome Technologies||Not available||Bioplastic||6||9||-1||NA||0.8||-14.3||56.9|
|Waste Management||WM:xnys||Environmental services||47,202||15,455||1,670||13.7||3.6||-0.5||146.6|
|Republic Services||RSG:xnys||Environmental services||29,346||10,299||1,073||13.0||3.4||3.9||147.4|
|Waste Connection||WCN:xtse||Environmental services||26,435||5,389||567||26.0||5.3||14.9||190.5|
|Kurita Water Industries||6370:xtks||Environmental services||3,902||2,436||168||9.7||1.3||10.7||56.4|
|Cleanaway Waste Management||CWY:xasx||Environmental services||3,097||1,566||76||11.5||2.4||7.8||252.4|
|Clean Harbors||CLH:xnys||Environmental services||2,959||3,412||98||7.5||1.4||-38.0||17.4|
|Plug Power||PLUG:xnas||Fuel cells||4,851||230||-85||NA||12.7||282.1||482.4|
|Ballard Power Systems||BLDP:xtse||Fuel cells||3,655||106||-39||NA||30.9||108.4||1,115.4|
|Bloom Energy (**)||BE:xnys||Fuel cells||2,020||785||-304||NA||2.9||104.0||NA|
|PowerCell Sweden||PCELL:xome||Fuel cells||1,225||7||46||NA||170.9||44.2||1,588.7|
|Ceres Power||CWR:xlon||Fuel cells||1,173||20||-6||NA||20.0||113.7||568.7|
|China Yangtze Power||600900:xssc||Hydro||62,495||7,221||3,119||13.9||10.9||12.8||NA|
|Brookfield Renewable Partners||BEP:xnys||Hydro||14,150||2,980||-34||19.1||10.2||25.3||175.4|
|Tesla||TSLA:xnas||Mobility & electric vehicles||354,423||24,578||-862||90.3||8.1||354.6||654.7|
|Uber||UBER:xnys||Mobility & electric vehicles||58,800||14,147||-8,506||NA||4.1||12.8||NA|
|BYD||01211:xhkg||Mobility & electric vehicles||40,466||17,632||234||19.8||1.8||176.8||171.0|
|NIO||NIO:xnys||Mobility & electric vehicles||24,465||1,133||-1,634||NA||6.0||346.8||NA|
|Lyft||LYFT:xnas||Mobility & electric vehicles||8,417||3,616||-2,602||NA||2.6||-37.3||NA|
|Workhorse||WKHS:xnas||Mobility & electric vehicles||2,362||0||-37||NA||8,868.8||639.1||355.8|
|Avis Budget||CAR:xnas||Mobility & electric vehicles||1,900||9,172||302||6.4||2.4||-14.2||-39.5|
|CGN Power||01816:xhkg||Nuclear power||18,761||8,814||1,371||10.3||4.7||-19.4||-41.0|
|China National Nuclear Power||601985:xssc||Nuclear power||10,006||6,670||668||11.5||6.8||-8.3||-47.5|
|BWX Technologies||BWXT:xnys||Nuclear power||5,395||1,895||244||14.3||3.0||-6.1||135.1|
|Xinyi Solar Holdings||00968:xhkg||Solar||11,726||1,161||308||21.1||7.2||97.9||380.4|
|Vestas Wind Systems||VWS:xcse||Wind||29,586||13,598||788||18.0||1.2||45.8||206.4|
|Siemens Gamesa Renewable Energy||SGRE:xmce||Wind||17,087||11,536||158||NA||1.2||39.9||125.7|
|China Longyuan Power||00916:xhkg||Wind||4,926||3,988||661||7.0||4.5||-0.4||-38.3|
|Innergex Renewable Energy||INE:xtse||Wind||3,017||420||-21||20.6||13.5||40.1||183.8|
|Beyond Meat||BYND:xnas||Plant-based food||9,402||298||-12||1,061.9||21.7||99.2||NA|
|ECX Carbon Emissions (***)||EMISSIONSDEC20||Carbon emission||NA||NA||NA||NA||NA||6.9|
* Market capitalization, 12-month rolling revenue and 12-month rolling net income are all measured in USD mn.
** Peter Garnry owns shares in Bloom Energy and Good Natured Products with no intention to sell within the next month
*** ECX Carbon Emissions can be traded through a CFD (expiring every year in December) or a future (Dec-2020 has ticker code CFIZ0)
**** YTD (%) and 5yr (%) is total return year-to-date and the last five years in local currency
One of the key technologies in the transition to a less carbon intensive economy is batteries & energy storage as renewable energy needs storage as it cannot always be produced when demand is there. We have recently written about Tesla’s ‘Battery Day’ and how it offered a glimpse into better and more efficient batteries over the coming years, and a more general research note on lithium-ion batteries and how the battery industry will prove a high-growth industry for decades.
The climate theme will also be impacted by the upcoming US election on 3 November. The Trump administration has done little to advance climate policies pulling the US out of the Paris Accord and rolled back many EPA rules. Biden has as a part of his campaign launched a plan called Clean Energy Revolution which contains spending of $1.7trn over 10 years. Read our research note from August describing which green energy stocks could go up in the case of a Biden win.
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