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Company valuations and climate strategies are poles apart

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Company valuations and climate strategies are poles apart
© Reuters. FILE PHOTO: General view of the coal power plant in Neurath near Cologne, Germany, November 5, 2021. REUTERS/Wolfgang Rattay/File Photo

(In Nov. 24 story, corrects methodology in paragraph 12)

By Elizabeth Howcroft and Simon Jessop

LONDON (Reuters) -Companies in the most polluting sectors that have invested in climate action often find themselves valued below peers that have been slower to do so, highlighting the difficulty of getting shareholders to back sustainability.

Investors have poured more than $30 trillion https://www.reuters.com/business/sustainable-business/sustainable-investments-account-more-than-third-global-assets-2021-07-18 into environmental, social and corporate governance (ESG) strategies, data from the Global Sustainable Investment Alliance showed.

But the demand for sustainable investment has yet to remove the pressure to put profits first and pro-climate analysts are concerned the outcome of U.N. climate talks https://www.reuters.com/article/climate-un-idCNL1N2S405F earlier this month did too little to help.

Analyses of companies globally by management consultancy Kearney in November seen exclusively by Reuters, as well as data by Credit Suisse (SIX:) Group AG published in April, found that companies that lowered their emissions in sectors where doing so was expensive and government regulation was limited were valued less, on average, than more emitting peers.

Investors were only found to reward the most emitting companies, such as energy, mining and heavy industry, for taking action on climate change when the cost of doing so was relatively small and government support and regulations were relatively strong.

“Investors want climate leadership, they want tangible transition plans, but at the same time they are only willing to reward companies that can do so without sacrificing returns,” Betty Jiang, Credit Suisse’s head of U.S. ESG research, said.

Given changing attitudes as climate change becomes more extreme, some see an opportunity to invest in companies cheaply before the market values their climate action more highly.

Others worry the risk of losing value is making corporate boards reluctant to act to avoid catastrophic climate change, especially after governments at the United Nations talks in Glasgow this month failed to send a strong message that global warming can be capped at 1.5 degrees Celsius (2.7 Fahrenheit).

“There is currently no clear line of sight between climate investing and its impacts. Green (investment) portfolios have not yet equated to a green planet,” said Anthony Cowell, head of asset management at KPMG Islands Group.

EUROPEAN INVESTORS VALUE SUSTAINABILITY MORE

Kearney calculated the valuation of 481 companies globally as a function of their cash flows.

It then assessed their climate action using the Transition Pathways Initiative benchmark (TPI), an investor initiative launched in 2017 to assess companies’ response to climate change.

Where TPI scores were not available, Kearney looked at a ratio of companies’ greenhouse gas emissions to their revenue to assign ESG leadership or laggard status.

Steel, chemicals, cement and power companies in Europe with top-rated carbon reduction plans have an average valuation premium of 62% to peers who are climate action laggards, the Kearney analysis found.

In the rest of the world, that premium is 25%, demonstrating that European investors value sustainability more than others globally.

Companies with higher climate scores in the aluminium, airlines, autos, diversified mining, infrastructure, maritime transport and oil and gas sectors show the opposite trend.

In Europe they trade at a 27% discount on average to environmental laggards, the analysis found. In the rest of the world, that discount is even wider – 41%.

Although many factors can skew a company’s valuation, Alexis Deladerriere, head of international developed markets equity at Goldman Sachs Group Inc (NYSE:), said that in heavy-emitting sectors ESG scores were not reflected in a company’s valuation premium.

“There is basically no correlation – no valuation premium – for having a high ESG score in general or having a high ‘E’ score specifically,” Deladerriere said.

“If you are behaving badly, if you are polluting and you’re not doing anything about it, do you get penalised for doing that? Unfortunately, not really in the short term.”

ENERGY, MINING

The energy and mining sectors are dominated by risks that can impact valuation, but still the evidence is that the very sectors with leading roles in decarbonising are not being rewarded for moving away from fossil fuels.

BP (NYSE:) Plc, for example, is viewed as a climate leader with a top “4STAR” TPI level. Yet it has a lower valuation, as measured by its enterprise value to cash flow ratio, than many ESG laggards with lower TPI scores, such as U.S. peer Valero Energy Corp (NYSE:).

In the mining sector, Rio Tinto (NYSE:) Plc is considered a climate leader, with a TPI score of 4, but its valuation premium is less than a third of that of Freeport-McMoRan (NYSE:), which is a climate-laggard by the TPI measure, Kearney’s data showed.

BP, Valero and Rio Tinto did not respond to requests for comment. A spokeswoman for Freeport-McMoRan said the company had made “significant progress” on climate in the last two years and is committed to “integrating our climate initiatives into our long-term business plans”.

As climate change becomes an even bigger focus for markets and regulators, some corporate directors say boards will start to take stronger action on climate change as more investors begin to give them credit for it.

“Every company wants to figure out how to do (sustainability) quickly and easily because it’s a shorter return on investment,” said Orlando Ashford (NYSE:), a director on the boards of companies including drug maker Perrigo and solar energy equipment manufacturer Array Technologies.

“If you fold it into the construct of how you are running your business it will take longer, but it’s not a fad,” Ashford said.

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Krispy Kreme Shares Plunge Following Goldman Sachs Downgrade

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Krispy Kreme Shares Plunge Following Goldman Sachs Downgrade
© Reuters

By Sam Boughedda

Investing.com — Krispy Kreme Inc (NASDAQ:) stock fell 8% after Goldman Sachs analyst Jared Garber downgraded it to sell.

Garber cut it from neutral, setting a $14 price target. That did represent a 4% downside from Tuesday’s close. However, the stock has now fallen below that level, trading around the $13.28 mark. 

The analyst cited rising cost pressures across many key areas for Krispy Kreme’s company-owned model, which Garber feels presents risks for margins. 

In addition, he explained that consumer data implies that the brand may have limited pricing power to react to inflation, and with the indulgent food category only expected to grow 1.1% per year to 2025, it forced Garber to lower estimates for the company.

 There is “limited clarity on the underlying drivers of top-line growth,” according to the analyst.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Stock Markets

European shares rebound from Omicron-spurred rout

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European shares rebound from Omicron-spurred rout
© Reuters. The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, November 30, 2021. REUTERS/Staff

By Anisha Sircar and Susan Mathew

(Reuters) -European shares posted their best session in almost six months on Wednesday, as investors picked up beaten down stocks that were hammered in the past few sessions by fears of the spread of a new and highly infectious strain of the coronavirus.

The pan-European rose 1.7%, recovering from a sharp sell-off in the previous session that had sent it to a seven-week low. The index ended November with a 2.6% drop and is 4% away from the record high it hit in the middle of last month. [MKTS/GLOB]

“Europe was already imposing lockdowns before Omicron. Since valuations are still elevated, earnings need to do the heavy lifting from here; that task has now become harder in the EU …. relative to the U.S.,” TS Lombard research head Andrea Cicione said.

A recent Reuters poll of strategists and brokers suggests that European stocks may hit record highs in 2022, boosted by a recovery in corporate profits.

The poll also says that and 40 indexes would hit uncharted peaks by mid-2022, while the STOXX 600 would gain 7% and reach 500 points by July.

“In the short term, uncertainty and therefore market volatility will continue until we get greater clarity on the resistance to vaccines and the lethality and transmissibility of Omicron,” TS Lombard’s Cicione said.

Industrial stocks were the biggest boost to the STOXX 600 on Wednesday. Among sectors, autos as well as travel and leisure rose 3.8% and 3.1%, respectively.

Miners gained 2.3% after prices rebounded on easing concerns about the Omicron coronavirus variant, while oil stocks jumped 2.1% as crude prices rose as OPEC meets. [MET/L] [O/R]

The European Union could greenlight COVID-19 vaccines tailored to target the new variant in three to four months, the region’s drug regulator chief Emer Cooke said on Tuesday, adding that existing shots would continue to provide protection.

A survey showed manufacturing growth in the euro zone accelerated slightly last month, but supply chain bottlenecks worsened.

Among individual stocks, Husqvarna, the world’s biggest maker of power gardening tools, jumped 5.4% after raising its overall financial targets and growth ambitions for robotic lawn mowers and other battery-powered products.

Italy’s Banca Monte dei Paschi di Siena surged 16.7% after saying it had begun a dialogue with the Ministry of Economy and Finance to restart discussions on its plans to raise capital.

Battered German property group Adler’s shares surged 34.5%, pulling up from all-time lows, after announcing divestitures.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Stock Markets

Jewellery maker Pandora has no plans to join platforms like Amazon or Farfetch -CEO

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Jewellery maker Pandora has no plans to join platforms like Amazon or Farfetch -CEO
© Reuters. FILE PHOTO: Jewels are seen in a Pandora jewellery shop in downtown Rome, Italy, August 7, 2018. REUTERS/Max Rossi

COPENHAGEN (Reuters) – Jewellery maker Pandora (OTC:) would prefer to invest in physical stores or its own online sales platform rather than join large e-commerce marketplaces like Amazon (NASDAQ:) or Farfetch (NYSE:), its chief executive said on Wednesday.

“If you’re a small and unknown brand, marketplaces offer a great opportunity, because they provide you with an audience. I already have an audience,” CEO Alexander Lacik said during an interview at the Reuters Next conference on Wednesday.

Pandora, the world’s largest jewellery maker by production capacity, has found a niche between cheaper accessories sold by the likes of H&M and more expensive jewellery like that of Tiffany & Co (NYSE:).

“Eight out of ten women globally are aware of our brand, so I don’t need to make you aware of me. What I need to do is to show you what I’ve got, and I can to this much better if I have a direct relationship with my customer,” he said.

The $12.3 billion company, headquartered in Copenhagen, has increased investment in e-commerce during the pandemic. It is present on China’s T-mall platform but not on large global platforms like Amazon or Farfetch.

“Marketplaces always have to make a compromise for all the clients they are serving. I don’t have to compromise,” he said.

Pandora’s more than 2,600 physical stores remain the core of its business and still account for 75% of global sales.

“Nearly two-thirds of my customers are men buying jewellery for their girlfriends, wifes, grandmothers or children. And we know that men buying jewellery need help,” he said.

To watch the Reuters Next conference please register here https://reutersevents.com/events/next/

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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