♻️ 3 Recent Examples of Corporates Which are Working to Counter Climate Risks ♻️

Big Money Starts to Dump Stocks That Pose Climate Risks (Bloomberg)

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  • As climate change related risks are becoming more pronounced, major investment firms have been increasingly pushing companies to address these risks and their role in exacerbating them.
  • This year, almost every major public oil company faced at least one shareholder resolution involving climate change, with proposals winning record support.
  • While most asset managers prefer engagement to divestment, frustration over fruitless discussion and resolutions has also led to a growing divestment campaign.
  • Earlier this year, Legal & General Investment Management (LGIM) reduced its stake in oil giant Exxon by US$300m, using its remaining stake to vote against the reappointment Chairman and Chief Executive Officer Darren Woods.

Analysis and Comments

  • The whole debate around divestment vs engagement is a potentially divisive one – not so much among asset managers but in discussions with asset owners and particularly retail investors.
  • Over the last few years, it has been interesting to watch the shift in focus, as the engagers have increasingly honed in on the stranded asset risk across a whole range of industries, which has real and tangible implications for value.

Google pledges carbon-neutral shipping, recycled plastic for all devices (Reuters)

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  • Google announced beginning of the week that it would neutralize carbon emissions from delivering consumer hardware by 2020, and include recycled plastics in each of its products by 2022.
  • According to Anna Meegan, the company’s head of sustainability for its devices and services unit, the company’s transport-related carbon emissions per unit fell 40% in 2018 as it increased the use of ships rather than planes in transport.
  • Currently three out of nine products for which the company discloses details online contain recycled plastic (ranging from 20-42%) – which trails behind hardware rival Apple’s sustainability efforts.  

Analysis and Comments

  • The trend may be slow, but for those companies that sell high profile products such as Apple & Google, the pressure to show their green credentials appears to be growing.
  • It is not clear how Google will fully “neutralise carbon emissions from delivery” – initially it looks as if at least part of the solution will be via carbon credits (which will gradually become more & more expensive to buy).
  • Hence longer term, this increase in carbon crédits price could be providing an incentive for the transport sector to accelerate its own shift to low carbon.

Diageo spends £180m on greener African operations (FT)

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  • British spirits maker Diageo is investing £180m into green energy and water recovery solutions such as biomass boilers, solar installations and water recycling systems at 11 of its breweries across Africa.
  • The investment is the company’s largest environmental investment in a decade, and will include £50m in upfront capital for solar, water treatment and biomass equipment, as well as £130m in long-term supply and maintenance contracts.
  • The company’s ultimate goal is to become 100% green and it plans to half its water usage and GHG emissions by 2020 as part of a group-wide commitment. It is also increasing its focus on sourcing locally in, with 78% of agricultural materials used in its 12 breweries across Africa currently sourced from local farmers.

Analysis and Comments

  • Africa contributes c. 13% of Diageo’s global turnover and about half of the company’s beer sales, and a minimum of 20 of the company’s African production facilities are in so-called “water-stressed locations”.
  • Unsurprisingly, water is an essential ingredient in all of Diageo’s brands (90%+ of beer and 60% of spirits) and the company has thus far been able to achieve a c.44% improvement in water efficiency between 2009 and 2018.
  • According to new data from WRI’s Aqueduct tools, 17 countries (including Africa) – home to one quarter of the world’s population – face extremely high levels of baseline water stress, as water withdrawals globally have more than doubled since the 1960s.
  • Of the 17 most water-stressed countries,12 are in the Middle East and North Africa (MENA), where growing demand and climate change are pushing already constrained countries even further into extreme stress.
  • According to the World Bank, this region has the greatest expected economic losses from climate-related water scarcity (c. 6-14% of GDP by 2050), stressing the importance of pursuing SDG 6 – ensuring the availability and sustainable management of water and sanitation for all.
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Capital One reports data breach affecting 100m customers

Capital
One reports data breach affecting 100m customers (The WSJ)

  • Capital One, the 5th largest US credit card issuer, confirmed on Monday that a hacker accessed the personal information of around 106m card customers & applicants, in one of the largest data breaches of a big “bank”.
  • The bulk of the exposed data related to information submitted by customers and small businesses that applied for Capital One credit cards between 2005 & early 2019. It appears that the breach occurred as long ago as late March 2019, and that it was found by a so called white hat hacker, who emailed Capital One about the leak.
  • Capital One was an enthusiastic adaptor of the cloud for data storage, with the process of shifting all data to AWS due to be completed by 2020.
  • The data hacked apparently included social security numbers, bank account numbers, credit scores & payment histories but not credit card numbers.

Analysis and Comments

  • There was some early speculation that as the hacker had previously worked at AWS, that the hack might have come from there, but more recent filings by the FBI suggest that the Capital One data breach was the result of a configuration vulnerability in the Capital One system.
  • The Capital One breach came just days after credit reporting agency Equifax announced a c. $700m settlement with a number of US government agencies regarding their data breach  FTC blog on Equifax settlement. The settlement includes a sum of up to $425m for the c. 147m customers that were potentially impacted by the breach announced in Sept 2017.
  • Capital One was quoted as saying that they would make provision for costs of c. $100-$150m in 2019 to cover the notification of customers, credit monitoring & technology & legal costs. Although if the Equifax settlement is anything to go by this might not be all they end up spending.
  • According to the FT, news of the breach sent the shares of Capital One down 5.9% – a big move but not massive. This suggests to us that some investors are starting to view these breaches and the subsequent costs and fines, as just being a “cost of doing business”.
  • This approach may end up being risky. In the US, there have been increasing calls for more regulation of the way financial institutions protect their customers data Credit agencies must change how they manage data. Some commentators have drawn parallels with the European GDPR structure, where penalties of up to 4% of global turnover (up to E20m) can be imposed for breaches in processes around how client data is handled EU GDPR rules. In addition, much larger fines, such as the notice of intent to fine BA for a large data breach in 2018 ICO to fine BA £183m.
  • Consumers are increasingly looking to transact online – as more industries go digital, especially via the cloud, this is an issue that is going to take up more investor attention.

Capital One Stock Price

Germany expanding digitisation with the new Digital Care Act

Germany
expanding digitisation with the new Digital Care Act (Health Europa)

  • Germany has introduced the new Digital Care Act, which builds upon the 2016 ‘E Health Act’ that focused on developing information and communication technology in healthcare, particularly in the form of ‘electronic health cards’ and ‘electronic patient files’.
  • The new Digital Care Act will enable doctors to prescribe health apps, the cost of which, under certain conditions, will be reimbursed by German statutory health insurances.
  • Additionally, the German Act that currently prohibits the advertising for remote consultations will be amended, and any planned regulations of the introduction of the ‘electronic patient file’ have been removed, in order to facilitate its launch at the turn of the year 2020/2021.

Analysis and Comments

  • The electronic health card serves as an insurance card for people with statutory health insurance, while the electronic patient file (which hasn’t been built yet) is a further development of the card.
  • The file will enable statutory health-insured people to access a broad range of medical information such as, for example, findings, diagnoses, therapy measures, treatment reports, and vaccine history.
  • A separate privacy law governing the sensitive health data that is to be recorded in the electronic patient file is due to come into effect in January 2021.
  • Ultimately, the new law simply recognises the fact that patients have already been using health apps of various kinds, and stresses Germany’s intent to introduce digital services such as the electronic patient records as soon as possible.
  • Australia recently introduced a similar patient file called ‘My Health Record’, which apparently not only many Australians have opted out of, but is currently often empty (i.e. not being used as information is not being shared in a meaningful way between all parts of the system).

We need to shift the healthcare focus to preventative

We need
to shift the healthcare focus to preventative (The Conversation)

  • On the 22nd July, in the last days of the May government in theUK, a green discussion paper was released on preventative healthcare. The report highlights the long term risk to health budgets if the emerging (& in some cases already emerged) life style risk factors (smoking, obesity, diabetes etc.) are not addressed
  • The report flags some of the recent successes, including the reduction in smoking (its now down to fewer than 1 in 6 of the adult population)
  • But, it also highlights some of the risk factors we are yet to find solutions to – of which the biggest is obesity (especially in children)
  • The report goes on to discuss the increasingly important role that technology will play in helping to solve these problems, obviously not on their own but as part of a wider shift in healthcare priorities
  • The article also highlights that only 5% of UK NHS spending (which is the bulk of the governments healthcare budget) goes on preventative medicine.

Analysis and Comments

  • This report and the related article picks up two very important issues in healthcare – that we think will have material impacts for investors.
  • Much of what we see in the industry around innovation is about better ways of doing the same thing (better heart valves, improved drugs etc). This is in of itself a good thing, but its not enough if innovation is really to make a difference to long term health outcomes
  • This article also picks up on the second important issue, institutional change. Across Europe much of our healthcare industry is driven by government spending & priorities. In such an environment, switching to preventative healthcare is tough as it does not really contribute to achieving short (or in some cases even medium) term goals.
  • The article picks out a number of areas where current technology, properly applied, could make a difference to longer term health outcomes. Inaddition, just yesterday, there were reports out can Google predict kidney disease, that suggest AI could be used to help identify those hospital patients that are at a high risk of developing kidney related complications. The current trial at the Royal London Free Hospital, seems to have gone well kidney app a life saver.
  • These technological advancements to really gain traction need a shift in emphasis among politicians, who set government healthcare priorities. When that happens we could see an explosion in opportunity for European healthcare companies.

Microsoft’s $1bn OpenAI partnership underpinned with closer Azure ties

Microsoft’s
$1bn OpenAI partnership underpinned with closer Azure ties (ITPro)

  • Not-for-profit organisation OpenAI (co-founded by Elon Musk) and Microsoft have formed a $1bn strategic partnership focused on integrating Microsoft’s Azure cloud platform with its on-going work.
  • The two firms will jointly develop Azure AI supercomputing technologies, but also focus on creating artificial general intelligence (AGI).
  • OpenAI will port its existing services to Microsoft’s cloud and use Microsoft as preferred partner for marketing commercialised AI technologies.

Analysis and Comments

  • The main difference between AI and AGI is that AGI is not developed for a specific application and therefore more multi-functional in nature. So, while an AI can be incredibly good at one task (e.g. screening scans for cancer), the aim for AGIs is to have the ability to perform any task that a human can.
  • Some experts have predicted the development of an AGI to be achieved as early as 2030, however, most lean towards later dates, such as the year 2060 or even 2099.
  • Regardless, OpenAI has already achieved several impressive milestones in the AI world, for example, by setting new benchmarks for robot dexterity, with one of its video gaming bots recently beating human champions at Dota 2, while one of its text-generation systems can write anything from fake news articles to convincing song lyrics and short stories.

Microsoft’s Stock Price

BP sees electric cars charging 100% in 5 mins by 2021

BP sees electric cars charging 100% in 5 mins
by 2021 (BNEF)

  • As the oil major BP is expanding its footprint in EV charging, the company has stated it is focusing on reducing charging times, “…to have a battery in a car by 2021 that can be charged completely in five minutes – for a lot more than 100 kilometers”.
  • After its acquisition of BP Chargemaster for US$170m, BP is now in the process of installing ultra-fast EV chargers at service station in China, Germany, and the UK.
  • BP is also investing in biofuel development, as it considers the technology to be “the best way of decarbonizing long-distance jet transport”.

Analysis and Comments

  • This level of super fast charging is the holy grail of EVs. As cost comes down, and as the charging network grows, the last big barrier to overcome is the inconvenience of the time it takes to charge.
  • This shift, if achieved, could open up the EV market to those city dwellers who don’t have off street parking (so no easy home charging option).
  • To be clear, the BP target is just that; a target. The article claims, that the technology from a BP investment in an Israeli company called StoreDot already allows ultra high speed charging of mobile phones but the EV version seems to be work in progress.
  • The technology (FlashBatteries) seems to be a combination of the use of organic compounds in the cathode (plus Silicon?) and some form of capacitor technology (those of you with good memories will recall that Tesla recently purchased Maxwell Technologies – a global leader in ultra and super capacitors).  
  • Normally, I would be sceptical about such claims – the “we have found a way of producing super batteries” story appears on a regular basis in the tradepress. But with BP money behind them, perhaps this approach has a future.

Future EV Leaders are in “Emerging” Markets

China’s electric vehicle charging posts
exceed 1 mln (XinhuaNet)

  • The
    number of charging points in China has risen to 1m (up 69% YoY).
  • At
    the end of 2018 there were 760k charging points in China, up from 440k at end
    of 2017.

Analysis and Comments

  • Charging infrastructure is a lot more important than battery cost and subsidies in sustaining EV growth. The Chinese authorities are shifting their priorities from subsidizing EVs to financing the roll out of charging infrastructure.
  • The availability of high power/speed charging infrastructure will make short range EVs (~150miles) viable as your first car rather than your second one.
  • This is necessary, as battery costs are likely to bottom out at above $100/kWh which would make mass market EVs with long range commercially unaviable in the absence of subsidies.

Indian Cities Now Plan To Buy Thousands Of
Electric Buses (CleanTechnica)

  • Indian cities are planning to buy thousands of electric buses over the next few years.
  • In India, the government is spending $1.3bn on its electric bus programme and the funds will be used to subsidise 60% of the cost of the bus.

Analysis and Comments

  • Chinese bus OEMs such as BYD are the best placed to benefit from this opportunity, because they have a clear cost advantage versus bus OEMs in Europe and the US.
  • For the cobalt market (and hence Umicore), the bus market will also be important due to the shift in battery technology in buses from LFP to NMC which will boost cobalt demand.  

BYD Share Price

UK generates more electricity from zero carbon than fossil fuels

UK generates more electricity from zero carbon than fossil fuels (BBC)

For the first time since the Industrial revolution, the UK has generated more of its electricity from zero carbon sources than from coal & gas.48% of generation ytd (to end May) came from zero carbon, while 47% was from fossil fuels ( the rest was bio mass)Among the fossil fuels, coal fell to 3% of generation, while nuclear made up 18% of the zero carbon.

Analysis and Comments

I want to highlight that the shift to variable renewables creates a number of investment opportunities in terms of grid balancingIn the UK, this

New Renault Zoe – bigger battery, longer range and faster charging

New Renault Zoe – bigger battery, longer range and faster
charging (electrive.com)

Renault has
formally launched the new version
of the Zoe, the model is to be known as the Z.E 50. Details on pricing
etc are still to be announced, but its expected to be broadly in line with
the current model.Key details
from a battery perspective are a
larger battery (up from 41kWh to 52kWh) & the addition of a faster
charging capacity, using the CSS plug – but only up to 50kw.In addition the
electric motor (developed in house) has its power increased to 100kW
output.

Analysis and Comments

With

Another Tidbit of Wisdom… $AAPL

Markets are hard. No one has ever denied that. The second you think you are performing well and do not stick to a strict set of rules is likely around the same time (or seconds) that the market smacks you right in the face.

In order to succeed in the market across ALL time frames you have to get the trend right. Well your in luck. We are at a very pivotal point in the US Equity Market that the trend will be decided soon enough (more than likely). $AAPL is going to be our prime example here in analyzing

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