It's politics vs. markets for ESG as 2024 election year begins
Improving rate conditions could alter the playing field for ESG on Wall Street.
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Palisades Tahoe is among the Sierra ski resorts hoping for big snow in 2024 after a dry start to the season. Palisades averages 123 inches in December and 74 inches in January. This shot is from last month.
Happy New Year and greetings from Northern California, where the first snows of the year are (finally) hitting the slopes up at Lake Tahoe.
Like you, we’ve sifted through all the 2024 predictions, forecasts, and uh, guesses about the coming year in climate change and environmental, social and governance (ESG) investing and, like you, we’ve come away with the firm conviction that nobody really has any idea.
That said, here’s one major theme to keep an eye on that wasn’t really covered. The backlash against ESG by Republican states in the past two years, which went further than most investment analysts imagined in shutting up giant asset managers such as BlackRock and Vanguard, faces a more formidable opponent this year — falling rates.
A lot of the success of the backlash argument in the past two years came as rising rates crushed clean energy stocks by hurting borrowing costs. Against that backdrop, the argument against ESG investing was easy. But what if falling rates lead to a comeback in those stocks, as we saw in the fourth quarter.
Granted, these first few days on Wall Street aren’t a great sign the rally will continue. But rates will be coming down this year, and that’s good news for these stocks, and the investing strategies that back them up. As the U.S. election cycle heats up, and ESG is tossed around like a political football, what role the markets play could be a decisive factor in how that issue is received.
For climate investors, as well as for all voters, how the markets perform this year will be a major theme in the political debate that is coming to consume us. . . .
Don’t forget to contact me directly if you have suggestions or ideas at dcallaway@callawayclimateinsights.com.
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Latin America’s clean energy sector emerging as global leader
. . . . An abundance of minerals and resources and the development of a leading position in hydropower bode well for Latin America’s chances to become a renewable energy giant in coming years, but only if it can control its oil politics, writes Michael Molinski. Citing a report from the International Energy Agency, Molinski examines the prospects for a clean energy boom in countries such as Brazil, Argentina, Mexico, and Chile and whether those opportunities might be squandered by the continued reliance of some governments on shale and oil. As always, it comes down to politics. . . .
Thursday’s subscriber insights
Three big challenges facing climate stocks in 2024
. . . . Stocks tied to efforts to mitigate climate change face an uncertain new year. Among the challenges for investors are the number and timing of any interest-rate cuts by the Federal Reserve. High rates aimed at fighting inflation have made it much more expensive to build capital intensive solar and wind power projects, as well as curbing discretionary spending by individuals.
Two major wars — Russia’s invasion of Ukraine, and Israel’s conflict with Hamas — as well as the simmering prospects for a third between China and Taiwan, continue to make efforts to reach international consensus on responses to climate change harder.
And an unprecedented U.S. presidential election, with one of the likely major party candidates facing multiple federal and state criminal charges and ballot challenges promises months of uncertainty and turmoil.
But everything is relative, and given the truly awful year climate-related stocks had in 2023, it’s possible this year won’t be so bad, at least by comparison.
Still, 2023 was really bad for clean tech, until the past few months.
Overall, the Callaway Climate Insights Index of 51 notable climate-related stocks fell 16.8%, while the S&P 500 Index, led by large tech stocks, rose 24%. Losers outpaced winners for the year nearly 3 to 1.
And among the various sub-sectors of the CCI index, only one — electric vehicles — managed a gain. The EV sub-index rose nearly 70% for the year, led by a sharp rebound in Elon Musk’s Tesla TSLA 0.00%↑ . In addition to Tesla, Li Auto LI 0.00%↑ , up 83%, Stellantis STLA 0.00%↑ , up 64% and Rivian Automotive RIVN 0.00%↑ , up 27%, all cracked the CCI top five.
Elsewhere, wind-related stocks edged lower, falling 1.2%. One-time investment darlings, natural resources lost a quarter of their value, as measured by the price-weighted sub index.
The biggest losers were solar stocks, with the index off 38%, for all of 2023. Solaredge Technologies SEDG 0.00%↑ , ended 2023 off 67%, Beam Global BEEM 0.00%↑ was down 59% and Maxeon Solar Technologies MAXN 0.00%↑ fell 55%. . . .
How big a threat to Tesla is China’s BYD?
. . . . Tesla shares slumped this week after Chinese electric vehicle maker BYD, backed in part by Warren Buffett, passed it as the world’s largest EV maker. This despite the fact that Tesla itself reported a record quarter of sales in Q4 and is on pace to easily surpass two million vehicles in 2024 for the first time.
Investors concerned about BYD need to remember that while it beats Tesla handily in China, based on a much lower price and higher margins, it does not compete in the U.S., and is nowhere close to moving in thanks to election-year politics in Washington. With that extra market and a premium product, Tesla is in no danger and can spend its time focusing on its new models and its growing charging business.
More concerning is the rapidly changing market for EV sales in the U.S., which has been built on generous government subsidies for buyers that are fading away into a confusing spectrum of shrinking benefits. How Tesla plays those politics — it is becoming a major lobby player in DC — and maintaining its growing scale and sales should be the company’s main priorities.
At least one investor is sold on its chances. Cathie Wood of Ark Investments, an early Tesla bull, waded into the market during Tesla’s sell-off Wednesday and picked up 100,000 shares. . . .
Vineyard Wind’s big moment
. . . . More than 20 years after submitting its first application, the Vineyard Wind project off the coast of Massachusetts produced its first wind energy this week and sent it to the state grid. Owners Avangrid and Copenhagen Infrastructure Partners announced late Wednesday that a single turbine of what will eventually be a 62-turbine operation, began operations. Four more are set to start shortly.
While years behind competitors in Europe, the significance of the U.S. offshore wind industry lurching to life cannot be understated. It’s also a boon to the Biden Administration’s efforts to launch offshore wind as a complement to other renewable energies that have been growing across the country.
The red tape and bureaucratic messiness that surrounded all the delays to Vineyard Wind, as well as the protests from local communities, are still there. It will be years before the U.S. can produce enough wind energy to even compete in the same league as those in the North Sea, for example.
But the news this week was a triumph of climate ambition and clean energy interests over the forces of inaction and bureaucracy. More to come. . . .
Editor’s picks: Let the sun shine in; plus, electrolyzers for Amazon
A solar boom can help accelerate the shift away from fossil fuels, says the International Energy Agency. If the world's annual solar PV deployment surges to 800 gigawatts of new capacity in 2030, it would lead to a major drop in coal & gas power use compared to today’s policy settings.
First electrolyzer system powers up at Amazon fulfillment site
As many as 400 hydrogen fuel cell-powered forklifts at an Amazon AMZN 0.00%↑ fulfillment center in Colorado will be powered by a 1-megawatt electrolyzer recently installed by Plug Power PLUG 0.00%↑ . Low-carbon hydrogen will be produced and used on-site, the companies say. According to a report from Environment Energy Leader, it’s reportedly the first-ever electrolyzer system installed and used at an Amazon site. Electrolyzers, says the IEA, split water into hydrogen and oxygen to produce low-emission hydrogen from renewable or nuclear electricity. Plug is working with Amazon to provide more than 17,000 hydrogen fuel cells to power forklifts at fulfillment centers in North America. Heavy-duty machines benefit from hydrogen fuel cells, which can hold large amounts of energy needed to support electric batteries, the report notes.
Latest findings: New research, studies and projects
Why tree-planting campaigns don’t always work
In 2019, a Turkey tree planting campaign set a world record. Three months later, 90% of those saplings were dead. PBS Terra, a production of PBS Digital Studios, looks at the problems with tree-planting campaigns. “Planting trees to replace old-growth forests is a common solution, but it typically does not solve the problem. With deforestation causing climate-related disasters, it’s time to take a hard look at reforestation and what we can do to save our forests.” Watch the full report here.
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Words to live by . . . .
“In seed time learn, in harvest teach, in winter enjoy.” — William Blake.