Alpha-Centric ESG Research

Kyle Rudden

Corporate "net-zero" climate pledges are all the rage of late, with proud press releases being issued on a daily basis. This is a welcome trend – the world is woefully behind climate goals and based on current national pledges, we have a 5% chance of achieving the Paris Agreement's 2-degree goal.Corporate climate action is imperative.However, corporate pledges aren't always what they purport to be. Occasional greenwashing aside, even well-intentioned pledges from reputable companies can be misleading. Not intentionally, but due to ambiguous "net-zero" vernacular and the complexities of corporate climate action plans.The devil is in the details, for example:<ul>
<li>
<a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc" target="_blank" data-smartkarma-citation="entities:22108:1" rel="noopener">Royal Dutch Shell (RDSA LN)</a> has a 2050 goal premised on carbon offsets (not reductions) of a magnitude larger than today's entire global carbon offset markets in those specific areas.</li>
<li>
<a href="https://www.smartkarma.com/entities/bp-plc" target="_blank" data-smartkarma-citation="entities:21847:1" rel="noopener">BP plc (BP LN)</a> plans net-zero by 2050 via offsets and continued oil production is incompatible with 2-degree global warming (plus it funds lobbying against climate-change regulations).</li>
<li>
<a href="https://www.smartkarma.com/entities/microsoft-corp" target="_blank" data-smartkarma-citation="entities:15273:1" rel="noopener">Microsoft (MSFT US)</a> aims to be carbon negative by 2030, and by 2050 to have removed all CO2 emitted in its entire history (impossible with current technologies and offset markets).</li>
</ul>This Insight addresses those details. What to look for, and how to scrutinize climate pledges. Major differences between net-zero emissions, net-zero carbon, and carbon neutral. Emissions reduction versus offsetting. And the need for careful planning and long lead times, with no room for error.This will also serve as theoretical context for upcoming Insights that delve deeper into corporate climate pledges (e.g., a thematic report on science-based targets, and critiques of company-specific pledges).

Corporate "net-zero" climate pledges are all the rage of late, with proud press releases being issued on a daily basis. This is a welcome trend – the world is woefully behind climate goals and based on current national pledges, we have a 5% chance of achieving the Paris Agreement's 2-degree goal.Corporate climate action is imperative.However, corporate pledges aren't always what they purport to be. Occasional greenwashing aside, even well-intentioned pledges from reputable companies can be misleading. Not intentionally, but due to ambiguous "net-zero" vernacular and the complexities of corporate climate action plans.The devil is in the details, for example:

Royal Dutch Shell (RDSA LN) has a 2050 goal premised on carbon offsets (not reductions) of a magnitude larger than today's entire global carbon offset markets in those specific areas.

BP plc (BP LN) plans net-zero by 2050 via offsets and continued oil production is incompatible with 2-degree global warming (plus it funds lobbying against climate-change regulations).

Microsoft (MSFT US) aims to be carbon negative by 2030, and by 2050 to have removed all CO2 emitted in its entire history (impossible with current technologies and offset markets).
This Insight addresses those details. What to look for, and how to scrutinize climate pledges. Major differences between net-zero emissions, net-zero carbon, and carbon neutral. Emissions reduction versus offsetting. And the need for careful planning and long lead times, with no room for error.This will also serve as theoretical context for upcoming Insights that delve deeper into corporate climate pledges (e.g., a thematic report on science-based targets, and critiques of company-specific pledges). 

Climate Pledges: Promise and Potential for Planet and Profit... But the Devil Is in the Details

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

As long as market dynamics remain largely positive and the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US) indexes are above their respective intermediate-term support levels we believe a constructive outlook is warranted. To reiterate, support levels to watch include $90 on ACWI-US, $53 on ACWX-US, and $52 on EEM-US. Open the attached file to read our complete International Strategy document, and to find links to detailed comments and recommendations for each of our 12 Sectors.

As long as market dynamics remain largely positive and the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US) indexes are above their respective intermediate-term support levels we believe a constructive outlook is warranted. To reiterate, support levels to watch include $90 on ACWI-US, $53 on ACWX-US, and $52 on EEM-US. Open the attached file to read our complete International Strategy document, and to find links to detailed comments and recommendations for each of our 12 Sectors.

Global Equity Strategy: Constructive Pullback; Overweight Value

February has seen several very large ESG-linked and sustainability bond issuances, some in double-digits billions of dollars and setting records. Issuers include <a href="https://www.smartkarma.com/entities/lg-chem-ltd" target="_blank" data-smartkarma-citation="entities:3583:1" rel="noopener">LG Chem (051910 KS)</a>, <a href="https://www.smartkarma.com/entities/anheuser-busch-inbev-sa-nv" target="_blank" data-smartkarma-citation="entities:865:1" rel="noopener">Anheuser Busch Inbev (ABI BB)</a>, and <a href="https://www.smartkarma.com/entities/hennes-mauritz-ab" target="_blank" data-smartkarma-citation="entities:22380:1" rel="noopener">Hennes &amp; Mauritz Ab (HMB SS)</a>.Unlike green bonds, the proceeds from which usually finance one specific project, these deals allow issuers to invest proceeds in multiple areas of sustainability/ESG like renewable energy, recycling, and various Social-pillar initiatives. This has the potential to create a virtuous cycle, as it were.Importantly, a common characteristic of the deals discussed herein is that interest rates are tied to sustainability or ESG performance; if issuers fall short of targets the cost of servicing the debt goes up. Demand has been strong; H&amp;M's was seven times over, and it was able to price at lower rates.More than US$15 billion, just one month into the year.

February has seen several very large ESG-linked and sustainability bond issuances, some in double-digits billions of dollars and setting records. Issuers include LG Chem (051910 KS), Anheuser Busch Inbev (ABI BB), and Hennes &amp; Mauritz Ab (HMB SS).Unlike green bonds, the proceeds from which usually finance one specific project, these deals allow issuers to invest proceeds in multiple areas of sustainability/ESG like renewable energy, recycling, and various Social-pillar initiatives. This has the potential to create a virtuous cycle, as it were.Importantly, a common characteristic of the deals discussed herein is that interest rates are tied to sustainability or ESG performance; if issuers fall short of targets the cost of servicing the debt goes up. Demand has been strong; H&amp;M's was seven times over, and it was able to price at lower rates.More than US$15 billion, just one month into the year.

Recent ESG-Linked and Sustainable Bond Issues Are Breaking Records in Size and Demand

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc-48d2d58c-023d-485f-887d-f13ca5f049f6" target="_blank" data-smartkarma-citation="entities:25197:1" rel="noopener">Royal Dutch Shell (RDSA NA)</a> retains two main listings in both London and Amsterdam, both are also traded at the NYSE as ADR:
<ul>
<li>RDSA NA/RDSA LN, more liquid in Amsterdam
<ul>
<li>A shares, converted from Royal Dutch Petroleum, subject to Dutch withholding tax (15%).</li>
<li>Primarily listed in Amsterdam, with a secondary listing in London. </li>
</ul>
</li>
<li>RDSB NA/RDSB LN more liquid in London.
<ul>
<li>B shares, converted from Shell Transport &amp; Trading.</li>
<li>There is no Dutch withholding tax on dividends paid on Royal Dutch Shell Class B ordinary shares or Class B ADSs provided that such dividends are paid on the Dividend Access Share pursuant to the Dividend Access Mechanism.</li>
</ul>
</li>
</ul>
“B” shares trade in New York at a discount of approximately 5% with respect to the “A” shares.
<ul>
<li>
The reason is the effect of Dutch withholding taxes and the tax arrangements, which also create complexity for share buybacks, which could make up a larger proportion of distributions in the future.
</li>
</ul>
Shell has acknowledged over the last years that it might like to combine both  shares, should tax treatments allow it.
<ul>
<li>Oil majors are building renewables/low carbon businesses. In this scenario, they could part-list the pure play, retaining the operational synergies with the wider group but crystallising valuation, which would allow accessing new capital pools and providing investors with greater optionality.</li>
</ul>
RDSB ADR is trading at a 5% discount to RDSA ADR, well above the 10-year average, which is a 2% premium to the B shares. I regard that discount level as attractive.
Trade: LONG RDSB ADR/SHORT RDSA ADR. Target: 2% premium.

Royal Dutch Shell (RDSA NA) retains two main listings in both London and Amsterdam, both are also traded at the NYSE as ADR:

RDSA NA/RDSA LN, more liquid in Amsterdam

A shares, converted from Royal Dutch Petroleum, subject to Dutch withholding tax (15%).
Primarily listed in Amsterdam, with a secondary listing in London. 


RDSB NA/RDSB LN more liquid in London.

B shares, converted from Shell Transport &amp; Trading.
There is no Dutch withholding tax on dividends paid on Royal Dutch Shell Class B ordinary shares or Class B ADSs provided that such dividends are paid on the Dividend Access Share pursuant to the Dividend Access Mechanism.



“B” shares trade in New York at a discount of approximately 5% with respect to the “A” shares.


The reason is the effect of Dutch withholding taxes and the tax arrangements, which also create complexity for share buybacks, which could make up a larger proportion of distributions in the future.


Shell has acknowledged over the last years that it might like to combine both  shares, should tax treatments allow it.

Oil majors are building renewables/low carbon businesses. In this scenario, they could part-list the pure play, retaining the operational synergies with the wider group but crystallising valuation, which would allow accessing new capital pools and providing investors with greater optionality.

RDSB ADR is trading at a 5% discount to RDSA ADR, well above the 10-year average, which is a 2% premium to the B shares. I regard that discount level as attractive.
Trade: LONG RDSB ADR/SHORT RDSA ADR. Target: 2% premium.

Unilever on the Verge of Unification, So... What About Royal Dutch Shell?

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

In our Macro Overview of Global fund positioning, we cover the following: <ul>
<li>Managers raise EMEA Overweight, hit max underweight in US.</li>
<li>Taiwan key beneficiary of COVID rebalance, India sees outflows.</li>
<li>Cross country exodus seen in Financials/Energy.  Materials reverse long-term decline.</li>
<li>Active managers move towards defensive and secular growth sectors and out of cyclicals.</li>
<li>UK Energy stocks see decline, Dutch Tech stocks continue to attract new investment.</li>
</ul>Taken from our Global fund analysis, covering 391 active global funds with combined AUM of $800bn.

In our Macro Overview of Global fund positioning, we cover the following: 
Managers raise EMEA Overweight, hit max underweight in US.
Taiwan key beneficiary of COVID rebalance, India sees outflows.
Cross country exodus seen in Financials/Energy.  Materials reverse long-term decline.
Active managers move towards defensive and secular growth sectors and out of cyclicals.
UK Energy stocks see decline, Dutch Tech stocks continue to attract new investment.
Taken from our Global fund analysis, covering 391 active global funds with combined AUM of $800bn.

Global Equity Positioning:  Macro Overview.  Raising EU Overweights, Taiwan Vs India, UK Decouples

United Kingdom

Shell PLC explores and refines petroleum products. The Company produces fuels, chemicals, and lubricants. Shell serves clients worldwide.

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Shell PLC (SHEL LN)

Climate Pledges: Promise and Potential for Planet and Profit... But the Devil Is in the Details

Companies announce net-zero climate pledges daily, but they aren't always what they claim. The devil is in the details. This Insight explains what...

Kyle Rudden

Global Equity Strategy: Constructive Pullback; Overweight Value

As long as the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US) indexes are above their respective intermediate-term support levels we...

Vermilion Research

Recent ESG-Linked and Sustainable Bond Issues Are Breaking Records in Size and Demand

Recently, three record-setting ESG-linked and sustainability-linked bond issues totaling US$15 billion. Three deals, two months into the year, and...

Kyle Rudden

Unilever on the Verge of Unification, So... What About Royal Dutch Shell?

RDSB ADR is trading at a 5% discount to RDSA ADR, well above the 10-year average. I regard that discount level as attractive. Trade: Long RDSB ADR ...

Jesus Rodriguez Aguilar

Global Equity Positioning: Macro Overview. Raising EU Overweights, Taiwan Vs India, UK Decouples

In our Macro Overview of Global fund positioning, we cover the following: Managers raise EMEA Overweight, hit max underweight in US. Taiwan key...

Steven Holden

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