Few would argue. We see this shift of capital already happening. Investors are divesting, pledging new strategies of investment and reallocating capital to less risky, more forward-thinking ESG options. For example, more than 1,480 institutions have publicly committed to at least some form of fossil fuel divestment, representing an enormous $39.2 tn of assets under management. The People’s Pension is divesting £226 mn ($304 mn) from companies that fail to meet ESG standards. And a recent PwC survey revealed that half of investors are prepared to divest if companies fail to address ESG.
The creators of the European Commission’s action plan on sustainable finance can certainly take some credit for initiating this transition. Simply by requiring the calculation and disclosure of risk, as is required by the Sustainable Finance Disclosure Regulation (SFDR), investors are being made aware of the financial impact ESG issues can have on their share prices and returns.
Some companies – those that are leaders in ESG, in a green sector or part of the green revolution – will likely have no shortage of investment. But what about the companies that are not in such a position? How much risk do they face? Will they see major shareholders divesting and share prices falling?
How to determine the level of investor risk Part of the job of the investor relations team in this new era of ESG is understanding the risk of shareholders divesting. Ninety-one percent of European investors have a company-wide policy on responsible investing or ESG issues. And recent changes to these policies, spurred on by the SFDR’s requirement for light/dark green classifications and principle adverse impact disclosures, could impact decisions on their current investments. It is not just ESG funds that are currently evaluating ESG criteria.
Even if you are speaking to fund managers annually and feel confident you understand their plans, their strategy may change in this quickly evolving environment, particularly as the pledges institutional investors are making trickle down. Moreover, you need data – data you can give to the board and C-suite that indicates the level of risk in hard, cold numbers, not a conversation.
A risk analysis is the most comprehensive approach, which you can do yourself or outsource. To analyze the risk, you will need to look at what your investors, on a fund-by-fund basis, are actually doing – not saying – as that is the only true indicator of their future behavior.
The metrics used to analyze such behavior could include things like carbon risk across their portfolio compared with yours, controversy levels across their portfolio compared with yours, governance scores across their portfolio compared with yours, and the pledges they have made as a signatory to a global agreement such as the Net Zero Asset Managers Initiative or Climate 100+ that may be at odds, or in alignment, with your own commitments. Additional financial metrics that compare your performance against the fund’s portfolio would help provide an even more complete picture as to who is potentially likely to divest.
By doing this on a fund-by-fund basis across your entire shareholder base, you will then be able to group together funds by level of risk, and relay to management what percentage of shares in issue (or free float) could potentially sell in the near term due to a discrepancy on ESG and/or performance.
How to find best-fit investment Being proactive in finding investors that align with your company across a wide variety of metrics, including ESG (what we call best fit), would not only help to protect against the risk of current investors selling, but also help create demand for your stock and fuel fair market valuation.
This can be done by taking a set of metrics similar to those used to calculate the risk across your shareholder base and flipping them around to evaluate those funds that are not yet invested in you but could be. To create the initial list of those that are not invested in you but could be, a good starting point is to find those that are invested in your peers, sector, region or market cap. Crucially, you will then need to remove the funds that are already invested and those that you are ineligible for due to location, size, and so on. Having an accurate fund-level shareholder identification report is required at this stage, otherwise you may end up targeting current investors as if they were not invested.
After this process is complete, you can apply your ESG metrics to determine which are your best-fit investors. Comparing yourself with the funds across each of these data points will give a very clear indication of which funds you are aligned with and which you aren’t. Balancing these metrics is critical, however, as you may match on some, but not others. As such, a qualitative assessment across the entire spectrum of comparison points is an important last step in determining your final best-fit target list.
Conclusion It probably goes without saying that there is no perfect process for identifying potential investors. But with an accurate shareholder identification report, good ESG data and an experienced eye, you will be able to create a best-fit target list. In an era deemed the ‘biggest capital reallocation since the Industrial Revolution’, that might be a good list to have.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
