ESG has increasingly been on many investor’s radars, with more funds and index providers offering ESG options in their array of services. Blackrock took an assertive position earlier this year, alerting financial institutions around the globe of the standard it was planning to use, and the stance it would take with non-compliant companies it invested in. It outright began supporting standards such as the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB) and listed 244 companies as unsatisfactory in progress on climate concerns. It also adjusted its voting positions on boards when it came to individual company leadership’s stances on issues such as climate change.
Going forward, asset owners and managers will need to account for carbon reduction costs many of its portfolios will need to undergo, and even consider these costs as part of financing costs. Carbon intensive companies such as those involved in fossil fuels may overall see a decrease in investment. Moreover, as change usually happens from top-down in China, another possibility is that in order to increase the likelihood of meeting the nation’s carbon-neutral goal, financial regulators may impose policy on financial institutions to account for carbon goals and climate risks in their financing decisions. New requirements may also have institutions integrate scenario analysis and closer inspection of company disclosure of environmental factors including carbon emission and intensity for a reduced carbon output future.
In order for the Mainland to hit its carbon neutrality goals, and support more widespread use of renewable energy sources, the government will need to finance more green projects, especially green bonds. According to Yoshihiro Fujii, executive director of the Research Institute of Environmental Finance in Japan, who follows energy analysis in China, the country will most likely invite investors to purchase more financing for green projects. Since coal-powered plants make up over 50% of the Mainland’s energy supply, according to Edris Boey, ESG practice lead at Maitri Asset Management, moving down a carbon-neutral path will need as much investment as possible.
To get a sense of how some investors are acting, the following is an example of Citi’s plans. In a report, Citi analysts also detailed certain stocks that will benefit or experience negative impacts from China’s carbon neutral plan. In steps towards clean energy, companies in the solar- and wind-energy sector will most definitely see gains, according to the report, while those in gas, auto and industrial sectors will see losses.
Citi listed five China-based companies it would buy, including:
1. Xinyi Solar [0968:HK] – Manufacturer and seller of solar glass
2. Goldwind [002202:CH] – Wind turbine manufacturer
3. ENN [2688:HK] – Clean energy distributor
4. BYD [002594:CH] – Auto manufacturer
5. Ganfeng Lithium [002460:CH] – Lithium compound producer
Moreover, Citi also listed companies to avoid or sell, such as:
1. Shenhua [601088:CH] – Coal mining state-owned enterprise (SOE)
2. CR Power [0836:HK] – Developer and operator of coal-power plants
3. Dongfang Electric [600875:CH] – State-owned power-generator manufacturer
4. Daqin Railway [601006:CH] – Railway operator
5. Sinopec [600028:CH] – Oil and gas enterprise
Reference:
https://www.cnbc.com/2020/10/19/citi-stock-picks-to-buy-and-sell-on-chinas-ambition-to-go-green.html
Disclaimer: Nothing contained in this post should be construed as investment advice. Any reference to an investment’s past or potential performance should not be construed as a recommendation of any specific outcome or profit.
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