Debunking dichotomies

SFDR flip flop. China ESG woes. AGM season spice. Plus, here’s why Tesla is neither automaker nor tech company.

In the world

🇪🇺 The European Commission has issued amendments to SFDR in an attempt to clear up confusion about Article 8 and 9 classifications. Reiterating that ‘sustainable investment’ must be the objective, the Commission caveats that SFDR “does not prescribe a single methodology to account for sustainable investing.” Funds representing €175B were stripped of their Article 9 label in 2022. That could be reversed now that firms have more wiggle room, says Bloomberg, though the Financial Times warns of “flip-flopping” (among other ongoing challenges).

🇨🇳 Asian fund managers are lagging their European counterparts in assessing ESG risks, according to a new study by the the World Wide Fund for Nature, Singapore. The weak performance of Chinese asset managers is singled out, although — if reports of an ISSB-aligned reporting framework from Beijing are anything to go by — change may be imminent. Similarly/separately, Hong Kong announced that, from 2024, climate-related disclosures will be mandatory for issuers on its stock exchange. Whenever you’re ready, @SEC.

🇺🇸 In a prelude to what promises to be a spicy AGM season of ESG and anti-ESG resolutions aplenty, two major asset managers have teamed up against ExxonMobil. LGIM and CBIS are fronting a coalition seeking greater climate transparency amid fears of stranded asset costs; in a press release, LGIM said some of its funds had already divested. It’s not just oil majors. Their lenders, too, are steeling against shareholder scrutiny, with banks preparing for difficult questions about climate commitments and fossil fuel financing. 

In the spotlight: Debunking dichotomies

Is Tesla an automaker or a tech company?

Its capital expenditure (and sometimes share price) may look like that of a tech company, but surely digitalisation has progressed to the point that software/hardware spend is no longer the reserve of the tech (“”) industry. Its product may serve the same purpose as that of an automaker, but we don’t conflate renewable and fossil fuel companies by dint of their mutual customer base.

The perennial ESG investment riddle doesn’t have an easy answer. Tesla sells products to car people and shares to tech people. The ‘trap’ lies in the assumption that electric vehicle manufacturers belong to or are bulking out either industry, when — in fact — they’re building a new one. A new and very successful one.

“If I had asked people what they wanted, they would have said faster cars.” — Elon Musk, maybe

Greenification or decarbonisation is the latest in an exclusive cadre of industrial revolutions with vast economic rewards. The evidence is there if you can look past the politicking. This week, Bloomberg covered the curious case of anti-ESG lawmakers who moonlight as clean-energy supporters, because new industries bring new money and jobs to their states. (Iowa’s Chuck Grassley explains that ESG involves “coercive elements” “that are contrary to [his] view that capital markets should drive a low-cost shift to cleaner energy.” Team Impact!)

For the same reason that Republicans like renewables, Barron’s reports that the traditional car industry “desperately hopes Tesla is wildly successful.” Notwithstanding the short-term impact on gas-powered vehicle sales (which, in any event, is a problem more of regulation than of competition), Tesla’s success could unlock access to a different league of addressable market and capital efficiency and, ultimately, profit margins.

Old news to impact investors?

There’s a pervasive bias against ‘impact investing’ by the ‘fiduciary-duty-at-any-cost’ crowd. Even when the (financial) benefits of ESG-as-risk-management are grudgingly acknowledged, impact is too easily dismissed as a luxury rather than a necessary investment lens. This is both unfair and untrue. 

In essence, ‘positive impact’ is simply ‘positive development’. And, whether or not you care about social, environmental, and economic development, it’s a reasonably safe bet that plenty of people do, many of them politicians and policymakers. That makes it a material dimension. 

If you were seeking industry trendsetters and changemakers, there would be worse places to begin than with the sector outliers driving job opportunities and economic growth (SDG 8) and industry, innovation and infrastructure (SDG 9). Impact data, for instance, would have told you that Tesla is a good investment not because it manages regulatory or legal risk well (not that it does) but because it’s a driving force of economy and infrastructure.

That is, in fact, what Util data does say: Next to Ford’s summary score of 5, Tesla gets a healthy 22 relative to the Economy & Infrastructure group of SDGs.

Ford Motor Co. performance as measured against SDGs 1-17, Util data.
Tesla, Inc. performance as measured against SDGs 1-17, Util data.

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