Ford split just more ESG spin; plus why red states love blue energy plans
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One of the old axioms in investment banking is that whether you’re putting companies together or taking them apart, you get paid either way. After a run of several years of record mergers and acquisitions, big U.S. companies began splitting their businesses apart last year, arguing it was a better way to realize value in a strong stock market.
General Electric (GE), Johnson and Johnson (JNJ), Toshiba splits were all announced in one week together last fall. Now Ford Motor (F) is splitting its electric vehicle business, which it sees as its future, from its traditional internal combustion engine car business. The idea is that it can build the EV operation faster as a separate unit inside the company.
That may be true, and Ford shares rose on the announcement this week, but the road to new corporate eras is paved with potholes, especially when you plan to maintain your old business to make money too, as Ford does. Simply separating EVs won’t earn Ford any more points from environmental, social and governance investors than it does for an energy company — Peabody Coal for example this week — to launch a solar operation. As long as you’re still digging, producing and selling coal, your footprint is the same.
Total SA, France’s largest energy company, learned that the hard way this week when it was sued by environmentalists for misleading investors about climate change, who said its claims it can go net zero while still producing oil were essentially greenwashing.
Companies are trying any way they can think of to get credit from environmental, social and governance investors, and Ford should be applauded for its plans to invest up to $50 billion in electric vehicles in coming years. It has correctly identified what could be a long-term, game-changing market in EVs. But as long as it is still squeezing every last dime from gas-powered cars and trucks it’s hard to see the real transition in this transition plan. The bankers and advisers, however, will still get paid.
More insights below . . . .
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The most vital letter in ESG ratings is not what you might think
. . . . Everyone assumes that when it comes to company ratings for environmental, social and governance (ESG) performance, the E most directly correlates to fighting climate change, writes Mark Hulbert. But a new study shows it’s the little-favored G, for governance. And even within the nebulous G, only management alignment drives success on reducing greenhouse gas emissions, Hulbert found. It may be time to redo those ratings. . . .
Thursday’s subscriber insights: Exxon’s Russia exit a first sign its activist board members are making a difference
. . . . ExxonMobil, better late than never, says it’s pulling the plug on Vladimir Putin’s empire by walking away from the giant Sakhalin-1 project in Russia’s far east. Also in the late-to-the-game category, the oil giant says it plans to reduce pollution and seek “lower-emissions business opportunities.” Is Exxon changing its tone and trying to catch up with the competition? Or is shareholder activist and board member Engine No. 1 making a difference? In any case, it’s about time. Read more here. . . .
. . . . A bountiful crop of renewables is springing up in red states with an aversion for subsidies and taxes. And the harvest they’ve reaped is the discovery that the production of clean energy makes money. Don’t be surprised. Republicans overwhelmingly support green energy, according to a recent Gallup poll. But, in general, not for the same reasons as Democrats. Read more here. . . .
. . . . Fish on Valium? Right. That’s the least of their problems. Researchers have identified 58 different drugs in aquatic critters from South Florida’s coastal waters, including 17 in a single fish. They hope the data highlight the urgent need to fix our longstanding wastewater infrastructure mess. Read more here. . . .
. . . . Is pollution adding to your breathing woes? Or even causing it? Then it can’t be comforting to learn that the inhaler you use is contributing considerably to greenhouse gases. But, manufacturers have some ideas to help us all breathe a little easier. Read more here. . . .
To read all our insights, news and in-depth interviews, please subscribe and support our great climate finance journalism.
Editor’s picks: Happy 150th birthday, Yellowstone National Park
This week marks the 150th anniversary of the establishment of Yellowstone National Park. The park was officially established by President Ulysses S. Grant, according to the National Park Service, “to preserve and protect the scenery, cultural heritage, wildlife, geologic and ecological systems and processes in their natural condition for the benefit and enjoyment of present and future generations. … Yellowstone serves as the core of the Greater Yellowstone Ecosystem, one of the last and largest nearly intact natural ecosystems on the planet. Yellowstone has the most active, diverse, and intact collections of combined geothermal features with over 10,000 hydrothermal sites and half the world’s active geysers. The park is also rich in cultural and historical resources with 25 sites, landmarks, and districts on the National Register of Historic Places.” Find out more about Yellowstone and the NPS 150th anniversary celebrations.
Plans flow to demolish four California dams
In a statement that could ignite the biggest dam demolition project in U.S. history, federal regulators say there are benefits to a proposal to remove four big dams on Northern California’s Klamath River. The Associated Press reported recently that the statement by the Federal Energy Regulatory Commission “clears a major regulatory hurdle for the project and paves the way for public hearings on the document before a final draft is issued as soon as this summer.” Public hearings could be scheduled for this summer on the $500 million demolition and habitat restoration project, designed to help save migratory salmon. According to the AP report, “The project on California’s second-largest river would be at the vanguard of a push to demolish dams in the U.S. as the structures age and become less economically viable and as concerns grow about their environmental impact, particularly on fish.”
World Wildlife Day
Today is UN World Wildlife Day, celebrating and raising awareness of the world’s wild animals and plants. This year’s theme is “Recovering key species for ecosystem restoration.” Get more information from the UN and WWF. Above, the African Penguin, is considered by WWF to be critically endangered. This week’s report from the UN’s Intergovernmental Panel on Climate Change warns 14% of all creatures on land are at risk of extinction, and half of all species on earth have moved toward the poles or up mountains. Some 47% of species already have lost some of their populations due to climate change, according to the IPCC report.
Latest findings: New research, studies and projects
Green bonds and portfolio diversification: Evidence from China
From the abstract: China’s green bond market has expanded rapidly in recent years due to a national push for net-zero emissions and the growing appetite of investors. However, little is known about the investment benefits of green bonds from the perspective of portfolio optimization. The paper Do Green Bonds Improve Portfolio Diversification? Evidence From China investigates whether green bonds offer a better risk-return profile compared to conventional bonds in China. The authors compare the out-of-sample diversification benefits of green bonds and conventional bonds using various asset allocation strategies. The results show that the portfolio with green bonds leads to higher risk-adjusted returns than the portfolio with conventional bonds across different asset allocation strategies and risk aversions. This is mainly due to the increase in returns after including green bonds in the portfolio. Authors: Yingwei Han, School of Economics and Management, China University of Geosciences, Beijing; Ping Li, Beihang University School of Economic and Management Science; and Sanmang Wu, China University of Geosciences.
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Words to live by . . . .
“Everything depends on our ability to sustainably inhabit this earth, and true sustainability will require us all to change our way of thinking on how we take from the earth and how we give back.” — Deb Haaland, 54th U.S. Secretary of the Interior.