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Week in Impact: Pricing the circular economy

Does BlackRock's watershed CEO letter suggest the finance industry is finally taking climate risk seriously?

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๐Ÿ‘Ž ESG ratings are in the hot seat again. The FT scrutinises the world of ESG (or not) ETFs, many of which include securities that fall short of most definitions of 'sustainable'...

๐Ÿ‘€... While Reuters takes aim at ESG scores. โ€œThere is a huge gap in the world of ESG investing: between what ESG investments stipulate and what's really going on.โ€

๐Ÿ’ฐ UBS will recommend sustainable investments to all global clients of its $2.6trn wealth management business, adding the shift towards sustainability is "only just beginning."

๐Ÿ’ธ Credit Suisse is spearheading a project to broaden sustainable finance. Working with the CBI, it released a framework defining transition pathways for polluting businesses.

๐ŸŒˆ COVID-19 has further delayed progress towards the UN SDGs. The 2020 Social Progress Index finds they won't be achieved until 2092โ€”62 years behind schedule.

๐ŸŒก๏ธ This year will mark both the steepest drop in emissions and second-hottest year in history: twin facts that underscore the extreme measures needed to slow climate change.

๐Ÿญ Unfortunate, then, that emissions are already heading back to pre-pandemic levels. Expect 2016-2020 to be the warmest five-year period on record, says the WMO.

๐Ÿ”ฅ The effects of global warming are on full display in California, where wildfires have destroyed a record 2.5m acres and given rise to apocalyptical/'The Stand' scenes.

๐Ÿš— Uber is dedicating $800m to achieve a zero-emission, fully electric fleet by 2040. In the same announcement, it pledged net-zero emissions from corporate operations by 2030.

๐Ÿ’‚ John Glen, economic secretary to the UK treasury, confirmed the UKโ€™s intent to โ€œat the very least," match the ambition of the EUโ€™s sustainable finance action plan.

๐ŸŽฏ Regulatory group the International Organization of Securities Commissions is planning to consolidate the plethora of ESG standards, making it easier to compare information.

๐Ÿ“ Meanwhile, SASB, GRI, CDP, CDSB and IIRC (can't move for acronyms) published a paper outlining their pledge to achieve a comprehensive corporate reporting system.

Company spotlight: Tomra Systems

Tomra


"This is nuts, when does Tomra crash?" asked FT Alphaville last week. "Tomra's share price signals some risk," echoed a more conciliatory Simply Wall Street.

The โ‚ฌ5.1 billion Norwegian recycling and sorting machine company "walks and talks like an industrial company but is valued like Amazon." And its FAANG-like valuation is starting to invite scepticism. In the last five years, Tomra's shares have appreciated 460% versus a relatively meagre 43% for its local benchmark, the Oslo Bรธrs. Its P/E ratio is now significantly higher than the median of its peer group.

We're not here to debate whether or not Tomra is overvalued. What we are interested in, however, is what the valuation says a) about investors' appetite for sustainable stocks, and b) the buoying power of EU regulation.

First, appetite. Tomra, writes FT Alphaville, has been the beneficiary of the "tsunami-like" flows into sustainable funds in 2020, having found itself in the ESG portfolios of investment houses including Impax, BlackRock, Schroders and Hermes. Its focus on reducing food waste and increasing plastic recycling ticks two, very big, circular-shaped boxes.

Second, the impact of regulation. Half of Tomraโ€™s revenue derives from 'collection solutions', within which is the product the company is most famous for: reverse vending machines. Reverse vending machines, if you're not familiar, reward recycling by encouraging citizens to deposit empty plastic bottles and cans.

Last year, the European Parliament passed the Single Use Plastics Directive (the reason why plastic straws are so hard to come by). In line with the legislation, member states agreed to achieve a 90% collection target for plastic bottles by 2029 and ensure that plastic bottles contain at least 25% of recycled content by 2025.

Tomra has a 70% market share in reverse vending machines. As FT Alphaville points out, "it seems to have an open goal; all it has to do is tap it in."

Like Netflix and Uber before it, Tomra is being priced according to what it could be, rather than what it is today. The interesting question is not whether Tomra seizes the opportunity, but rather: what open goals might sustainable regulation open for other companies at the forefront of the circular economy?