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What will Biden’s SEC pick mean for ESG?

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Welcome to Moral Money and the start of Joe Biden’s presidency later today. For the past three years, Gary Gensler — Mr Biden’s pick to lead the US stock market regulator — has been studying and teaching about cryptocurrencies, an issue he will need to address as the Securities and Exchange Commission chairman.

But his familiarity with environmental, social and governance investing and climate change is less clear. He has not expressed a clear position on mandatory ESG or climate change corporate disclosures.

However, two things are known. First, the SEC’s two Democratic commissioners have supported ESG disclosures and will be helpful guides for the new chairman.

Secondly, we know Mr Gensler can drive regulations into existence. Handed the thankless task of adopting derivatives regulations during the Obama administration, Mr Gensler charged ahead with surprising speed and success. He barrelled over the corporate lobbyists who stood in his way — a trait he might rely on again to advocate for ESG disclosures.

The initial clues about Mr Gensler’s ESG position will come when he testifies before Congress for his new job. Moral Money will keep you updated. — Patrick Temple-West

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ESG activists target companies supporting ‘insurrectionist caucus’

© AP

Since the riot at the US Capitol on January 6, businesses have been scrambling to put distance between themselves and the people who supported Donald Trump’s attempt to undermine US democracy.

But ESG activists are highly sceptical of corporate pledges to cut off political donations to the members of Congress who voted to overturn the election. And groups like Majority Action are looking to ensure that companies and their executives don’t go straight back to business as usual once things calm down.

Over the weekend we had a scoop on Dan DiMicco, a former Trump adviser, exiting the board of Duke Energy after Majority Action launched a campaign calling for his departure, citing posts he made on Twitter and Parler questioning the legitimacy of Joe Biden’s victory.

And Mr DiMicco is only their first target.

In addition to putting pressure on individual board members and companies, Majority Action plans to turn up the heat on asset managers by calling for them to put political spending front and centre in their ESG programmes.

“Given their concentrated shareholder voting power, [investment managers] should be setting standards for comprehensive disclosure of corporate money, including corporate dark money in politics, and holding boards accountable for the alignment of that money with their corporate purpose and objectives,” said Eli Kasargod-Staub, executive director of Majority Action.

But stopping all political donations isn’t the answer, according to Mr Kasargod-Staub. Instead, he’d like to see companies take a more principled stand.

“[Pausing] political donations to all parties [implies] everybody in the ecosystem was working to undermine election integrity, instead of a minority of one party,” he said. “We are very concerned about this kind of ‘both-sides-ism.’”

Large investors like the New York City pension funds are making a similar call.

New York City comptroller Scott Stringer last week called on companies to permanently stop donating to members of Congress who objected to the certification of the Electoral College vote, saying that their actions “ultimately resulted in a violent insurrection orchestrated in part by white supremacists, domestic terrorists and neo-Nazis”.

Will this work? It is far too early to tell. The Washington Post found that 20 of the 30 largest corporate political donors had suspended some or all contributions since January 6.

But comments yesterday from Doug McMillon, Walmart chief executive and head of the influential Business Roundtable lobbying group, indicate that companies have no desire to loosen their grip on American politics: “Looking back, the business community has made contributions to strengthen the country,” he said on a conference call. “Not participating in the process as it’s laid out could create other issues . . . I think we’ve got to find a way to participate in the right way.”

As research from professor Shiva Rajgopal at Columbia University shows, political spending is one of the most profitable investments a company can make.

This will almost certainly mean Majority Action and other ESG advocates face an uphill climb, especially once the spotlight fades. But Mr Kasargod-Staub is optimistic about their chances.

“The question is do you countenance elected officials working in concert to overturn a free and fair democratic election, or not? That’s a really clear, bright line question.” (Billy Nauman)

BoA vice-chairman sees big ESG growth ahead under Biden

Anne Finucane, vice-chairman of Bank of America sees a bright future for climate activity on the horizon as Joe Biden takes office in Washington.

Ms Finucane said Europe had done the rest of the world a favour by leading on climate legislation. But while “the US may have been slow to the dance” it would soon take charge, Ms Finucane told Gillian Tett in a recent interview.

After a recent conversation with John Kerry, Mr Biden’s incoming climate envoy, Ms Finucane is confident that the government will accelerate climate action not just through regulation, but also through market-based “motivation”.

“The US, certainly more than Europe . . . its economy is built on capitalism. And it’s unapologetic about capitalism. So as a result when you create a market we move quickly.”

The business community was ready, she said. The sheer growth of ESG investing is evidence of this: “From the $110tn assets that are being professionally managed, we are seeing 40 per cent of global financial assets with an ESG consideration. And that will only increase.”

“As soon as you make it a capital market opportunity, it takes off, especially in the US.” (Kristen Talman)

Europe’s green gems

© Bloomberg

In the early 2010s, the Faang stocks — a collection of high growth technology companies from Facebook to Google — captivated the stock market and became an acronym darling. Subsequently, China’s Bat companies (Baidu, Alibaba and Tencent) took the baton. 

Now, we have Gems — green energy majors — a group of European utilities poised for success thanks to the EU’s green deal, according to a report this month from Goldman Sachs. The companies include Iberdrola, Orsted, Enel, Solaria, SSE and others.

Historically, European utilities have provided consistent dividends but were not growing businesses. But now these companies “should enjoy unprecedented growth,” Goldman Sachs said. “The green energy majors are likely to deliver solid growth until 2030.”

The three biggest Gems (Iberdrola, Orsted and Enel) have outperformed Europe’s big three oil majors (Total, BP and Shell) by 300 per cent since 2010, Goldman Sachs said. And there is increasing evidence that the oil majors are scrambling to catch up.

Total on Monday said it acquired a $2.5bn stake in Adani Green Energy, an Indian energy provider with a 2.35-gigawatt solar portfolio. 

The success of the European utilities should be viewed enviously by the rest of the world. China, Japan and South Korea have all promised net-zero targets. With a serious capital expenditure programme such as the EU’s green deal, these countries could ignite an acronym darling of their own. (Patrick Temple-West)

Tips from Tamami

When life gives you lemons, make beer. That’s the takeaway for one Japanese brewer, anyway, after it discovered a typo printed on one of its products. 

Sapporo’s new, limited-edition beer will hit the shelves early next month in Japan, despite its misspelt “lagar” packaging. The company first announced that it would halt the launching of the product due to the mistake, but four business days later Sapporo reversed the decision because of an outpouring of requests for the company to not waste the product by throwing it away. The misspelt beer also saw support on social media.

Sapporo said that it had received many inquiries about what to do with the cancelled product and offers to buy the beer after the initial announcement. Sapporo added: “We accepted our customer’s voices sincerely. After a series of thorough discussions within the company, we decided to cancel the decision of halting.”

The incident demonstrates how consumers’ awareness of social issues, such as food waste, can change corporate behaviour. When the misspelling was first reported, the company called the misprint “embarrassing”. But, which is more embarrassing — a misspelling or wasting drinkable beer? The answer from the Japanese public was loud and clear.

Smart reads

  • Before investors take any ESG claims seriously, the accounting has to become a lot more serious, Karthik Ramanna, a professor at Oxford, writes in the FT. Currently, high-quality rules are virtually unheard of in ESG accounting standards. As the accounting authorities and the auditing firms push for more environmental and social reporting, this situation has to change.

  • Our colleague Jamie Powell at Alphaville has unveiled a real time electric vehicle bubble watch — a scorecard detailing the financial health of green car and battery makers as well as other companies in the EV ecosystem.

  • The US Chamber of Commerce, the largest pro-business lobby group, updated its stance on climate change on Tuesday. “The chamber supports a market-based approach to accelerate GHG [greenhouse gas] emissions reductions across the US economy,” the group said. Read its full statement here.

Further Reading

  • EU rules promise to reshape opaque world of sustainable investment (FTfm)

  • Outdated carbon credits from old wind and solar farms are threatening climate change efforts (The Conversation)

  • Central banks and climate change: all hot air (FT)

  • Occidental claims green push ‘does more than Tesla’ (FT)

  • Sustainable ETF assets jump but most funds fall short on UN goals (FT ETF Hub)

  • Yellen says she would appoint a senior climate official at Treasury (Reuters)



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UK listings/Spacs: the crown duals

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City-boosting proposals are not enough to offset lack of EU financial services trade deal



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How Jennifer Granholm will reshape the US Department of Energy

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Two things to start: ExxonMobil appointed two new directors to its board, its latest effort to placate activist shareholders. And Texas’s largest power co-op Brazos Electric went bust yesterday, as the financial damage from the arctic storm continues to mount.

Oh, and after the hiatus caused by the pandemic, energy-related emissions are rising again, according to the International Energy Agency. They were higher in December than a year previously, the agency said.

Welcome to another Energy Source. Our main item today is on Jennifer Granholm, whom the US Senate last week confirmed as the country’s new energy secretary. Myles McCormick reports on her plan to revitalise her department and reorient it towards clean energy.

Thanks for reading. Please get in touch at energy.source@ft.com. You can sign up for the newsletter here. — Derek

Granholm looks to reboot the Department of Energy

From scuppering the Keystone XL pipeline to freezing the allocation of new drilling leases on public lands, Joe Biden’s plans to shake up the American energy system are well under way.

Next on the president’s agenda is an overhaul of the sprawling leviathan that is the US Department of Energy. And the woman that will lead that process is now in situ.

Jennifer Granholm, a former two-term governor of Michigan, took the reins of the $35bn a year government agency five days ago. And already it is clear there will be a shift in its focus — away from promoting fossil fuel exports and towards driving innovation in clean energy and climate technology.

This is what Granholm wrote in a blog post last Thursday, her first day on the job:

“President Biden has tasked the Department, his in-house solutions powerhouse, with delivering a cornerstone of his bold plan: the goal of achieving net-zero carbon emissions by 2050. For DoE, that means developing and deploying the technologies that will deliver a clean energy revolution.”

That will require a shift in priorities at the “in-house solutions powerhouse” — but one that analysts said Granholm was well suited to execute.

“She understands the economic benefits of transforming the agency into the Department of Clean Energy,” said Mitch Bernard, president of the Natural Resources Defense Council.

Jennifer Granholm was sworn in as energy secretary on February 25 © Getty Images

What can the DoE actually do on climate?

American energy policy is divvied up among several government agencies, of which the Department of Energy is just one. Traditionally its primary responsibilities have been the US nuclear weapons programme, environmental clean-ups and scientific research and development through its oversight of the country’s national laboratories.

Despite the department’s name, Granholm’s ability to effect the Biden climate agenda is constrained. She does not have oversight of emissions targets (which fall to the Environmental Protection Agency) or oil and gas drilling licences (the Department of the Interior).

“I do think the DoE’s ability to advance climate goals is fairly limited,” Nader Sobhani, climate policy associate at the Niskanen Center, told ES.

But what it can do is reinvigorate the department’s R&D role.

“I think there will certainly be a shift in the programmatic focus of this DoE as compared to the previous administration, in that there will be a concerted effort to innovate, develop and deploy clean energy technologies that are critical to combating climate change,” said Sobhani.

That means driving forward research on carbon capture and storage, electric vehicle charging infrastructure, energy storage technology and zero-carbon fuels such as green hydrogen.

How will it set about doing this? The department has a few tools in its toolkit:

  • There are the 17 national laboratories, which are hotbeds for tech breakthroughs.

  • There are grant and loan programmes it can use to drive innovation and de-risk new technologies to coax in private sector investment. Granholm has already indicated she will restart a $40bn loan programme that was left untouched by the Trump administration.

  • Plus, it has regulatory authority to encourage energy efficiency in certain appliances and new transmission lines.

But all of this will require funding. While Congress ensured the agency was not financially gutted by the last administration, ramping up its R&D role will require more money. Biden has pledged $400bn over the next ten years for clean energy and innovation.

Granholm’s record on spending big — sometimes without the desired effect — has already sparked criticism from some quarters, with conservatives arguing her selection “should frighten every American taxpayer”.

Jennifer Granholm, former governor of Michigan, speaks during TechCrunch Disrupt 2019 in San Francisco
Jennifer Granholm, former governor of Michigan, speaks during TechCrunch Disrupt 2019 in San Francisco © Bloomberg

New leadership

Just as important as finance will be the shift in tone Granholm will bring.

While money kept flowing under the Trump administration, the agency lacked the strategic drive needed for clean tech innovation, said Emily Reichert, chief executive of Greentown Labs, North America’s biggest start-up incubator.

“When people look back on it, it was an absence of leadership — on innovation, on policy, on decisions, on strategy — that we needed to move forward faster,” she told ES.

The DoE’s role in convening experts from across the US has been central to driving the development of new technology. But as a divided country shifts rapidly towards a new approach to energy, that outreach role will be even more important.

That makes the appointment of Granholm key. A Michigan native, with years of experience dealing with the Detroit auto industry, she will be able to bring the climate change narrative to parts of the country that coastal liberals have often failed to reach.

“I think that Jennifer Granholm coming from a Midwestern perspective is a real game changer in terms of bringing the focus of this activity to the middle of the country, and recognising that the middle of the country can also get engaged in this developing the innovations around climate,” said Reichert.

But most importantly — four years after Donald Trump appointed an energy secretary who thought the department should be scrapped — Granholm’s championing of clean energy should get investors excited to spark the influx of funds needed for the “clean energy revolution” her boss has promised.

“The market signal it sends is that, one, the US is back in the game,” said Reichert. “And two, that climate related technology solutions around decarbonisation are a good place to invest your money, your time, your talents, and to move your assets.”

(Myles McCormick)

Data Drill

The energy transition could lower oil prices in the long term by $10 a barrel — by far the biggest threat to the net present value of oil companies, according to new research from Rystad Energy that assessed the resilience of 25 large operators. The consultancy quantified the risk to NPVs of stranded assets as less than 1 per cent, and that from rising CO2 costs at mostly below 10 per cent.

Oil sands and tight oil companies are most exposed to price risk because of high break-even costs. Oil sands would suffer most from higher CO2 costs. And ExxonMobil’s revenue risk is higher than its supermajor peers’, “primarily because its portfolio includes several large, capital-intensive projects”, including the Permian Basin assets and Guyanese shale.

Bar chart of Impact on net present value (%) showing The energy transition's corporate hit, quantified

Power Points

FT Energy Source Live

The FT Energy Source Live event will be taking place on 24 — 25 May 2021. Join industry CEOs, thought leaders, energy innovators, policymakers, investors and other key influencers to hear the latest thinking and insights on the future of US energy leadership and its global context. Find out more here.

Endnote

IHSMarkit’s CERAWeek, cancelled by the pandemic last year, is back on — and it has a new look.

Keynote speeches and panel discussions have moved from the Hilton’s plush ballrooms in downtown Houston to a slick new web interface. Many have been pre-recorded. Deals that came together in the hotel’s executive suites will have to wait. Journalists are missing the free lunches.

Still, the conference’s agenda boasts a who’s who of the energy industry, and increasingly beyond, as the sector grapples with the low-carbon energy transition — a topic that was scarcely mentioned just a couple years ago.

Andy Jassy, the head of Amazon’s cloud business, who has been picked to succeed Jeff Bezos as the company’s CEO later this year, had some advice that cut to the heart of the dilemma facing oil executives.

“If you want to be a company for a long period of time — which by the way turns out to be really hard to do — you have to be able to reinvent yourself, sometimes several times over,” said Jassy in a session with BP’s Bernard Looney, who pitched his company’s own transition away from oil.

“If something is going to happen, whether it’s good for you or not, if it is good for customers it is going to happen,” added Jassy. “So you have a couple of choices: you can howl at the wind and wish it away as a lot of companies do — big leading companies do — when there are new shifts technology, or you can embrace it.”

Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek Brower, Myles McCormick, Justin Jacobs and Emily Goldberg.



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Hedge fund manager Hohn pays himself $479m

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Billionaire hedge fund manager Sir Christopher Hohn has paid himself a dividend of $479m, one of the largest-ever annual personal payouts in the UK, after profits at his firm more than doubled last year.

Hohn, who is founder of Mayfair-based TCI Fund Management and one of the UK’s biggest philanthropists, made the payment to a company he controls during the year to February 2020, according to regulatory filings.

TCI, which manages more than $45bn in assets and tends to bet on rising rather than falling prices, has been a big winner from the bull market of recent years. During 2019 it made $8.4bn worth of profits for investors, according to LCH Investments, profiting from gains in stocks including Alphabet, Charter Communications and Canadian Pacific Railway.

TCI Fund Management’s profits for the year to February 2020 jumped 108 per cent to $670.9m. The $479m dividend was then paid to a separate firm TCI Fund Management (UK). Both companies are controlled by Hohn.

TCI declined to comment. The payment was first reported by The Guardian.

While the payout beats the £323m paid to Bet365 boss Denise Coates in 2018, much of it has been reinvested in TCI funds, filings show. It is also far from the biggest-ever hedge fund payday, being dwarfed by sums such as the $3.7bn earned by US manager John Paulson in 2007 thanks to bets on the subprime crisis.

In 2014, during testimony in his divorce battle with estranged wife Jamie Cooper-Hohn, Hohn described himself as “an unbelievable moneymaker”. A High Court judge later awarded Cooper-Hohn a $530m divorce payout.

Hohn, who grew up in Surrey and is the son of a Jamaican car mechanic, is known as one of Europe’s most aggressive activist investors. A backer of climate group Extinction Rebellion, he has been vocal in recent years in pushing companies to improve their climate policy, for instance threatening to sue coal-financing banks and warning his fund will vote against directors whose companies do not improve pollution disclosure.

In October Spanish airports operator Aena bowed to pressure from Hohn’s fund, becoming the first company in the world to give shareholders an annual vote on its climate policy.

Through his charity The Children’s Investment Fund Foundation, which in 2019 approved $386m of charitable payouts, he wrote to seven of the world’s biggest asset managers, urging them to put pressure on companies over climate policy.

Last year TCI was one of a number of funds looking to raise fresh assets from investors after suffering losses during the pandemic. It was also one of the big winners from betting against collapsed German payments group Wirecard, making as much as €193m in a week, according to data group Breakout Point.

Hohn’s fortune was estimated last year at £1.3bn by the Sunday Times Rich List.

laurence.fletcher@ft.com



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