Tuesday, August 25, 2020

GWPF Newsletter: 'Green Recovery' Flops


ESG Investment Performed Worse Than Overall Market During Covid Recovery, Study Warns

In this newsletter:

1) ‘Green Recovery’ Flops: ESG Investment Performed Worse Than Overall Market During Covid Recovery, Study Warns
Institutional Investor, 20 August 2020

2) Eurozone Industry Fears EU's 'Green Recovery' Will Be Shortlived
Financial Times, 24 August 2020

3) Councils Forced To Reverse Street Closures After Backlash To Govt’s ‘Green’ Anti-Car Scheme
The Sunday Telegraph, 23 August 2020

4) Jonathan Ford: Green Ambition Has Short-Circuited California’s Power Supply
Financial Times, 22 August 2020
5) Robert Bryce: Green California Faces Dark Future
Forbes, 18 August 2020

6) Fossil Fuel Car Ban ‘Will Close Cheapest Route To Cutting CO2’
Transport Xtra, 22 August 2020

 7) David Rose: How Eco-Warriors Are Using Covid As An Excuse To Drive Cars Off The Road

Mail on Sunday, 23 August 2020

8) And Finally: Greta Thunberg ‘Losing Relevance’ In Wake Of Global Pandemic
Sky News, 14 August 2020

Full details:

1) ‘Green Recovery’ Flops: ESG Investment Performed Worse Than Overall Market During Covid Recovery, Study Warns
Institutional Investor, 20 August 2020
“Not only did more socially responsible firms not exhibit the alleged greater share price resilience during the Covid-induced market decline, but they actually performed significantly less well when the overall market recovered.”


The pie chart in Figure 1 represents the contribution of ESG, company financials, stocks’ risk and growth potential, industry, and other factors to the Covid Crisis period model by Demers et al. 2020
A new study refutes “widespread claims” that environmental, social, and governance considerations improved stock performance during the pandemic.

In the aftermath of March’s coronavirus crash, numerous fund managers and data providers determined that companies with high ESG scores outperformed during the rapid sell-off — and a surge of money followed into funds focused on environmental, social, and governance issues.

A new academic study, however, raises questions about the link between ESG considerations and stock performance during crises.

Researchers from Canada’s University of Waterloo, Tilburg University in the Netherlands, and New York University’s Stern School of Business challenged the “widespread claims by fund managers, ESG data purveyors, and the financial press” that companies with high ESG scores were better situated in the pandemic. In particular, the authors — Elizabeth Demers, Jurian Hendrikse, Philip Joos, and Bauch Lev — cited reports from BlackRock, Morningstar, and MSCI, which all found that ESG funds outperformed during the crash.

BlackRock, for instance, reported its sustainable funds achieved better risk-adjusted returns during the first quarter, while 24 of 26 ESG-tilted index funds tracked by Morningstar also outperformed their “closest conventional counterparts,” according to the analytics firm.

According to the academics, however, ESG scores “offer no such positive explanatory power for returns during Covid-19.”

“ESG is not an ‘equity vaccine’ against declining share prices in times of crisis,” Demers and her co-authors argued. “Following all this hyping of ESG as downside risk protection, there was no surprise in CNBC’s report that the first quarter of 2020 saw record inflows into sustainable funds.” 

Instead of ESG, they found that stock movements during the first quarter appeared to be driven by firm leverage and cash positions, as well as industry sectors and market-based measures of risk. Returns were also positively associated with measures of intangible assets, according to the study.
“These results suggest that innovation-related assets rather that social capital investments offer the greater immunity to sudden, unanticipated market declines,” the authors wrote.

Deep Dive: ESG Has Failed to Outperform for Years. Is this a Fix?
Looking beyond the initial crash in March, the researchers found that ESG factors were negatively associated with returns during the recovery in the second quarter, while investments in innovation-related assets continued to positively impact performance. “Not only did more socially responsible firms not exhibit the alleged greater share price resilience during the highly unexpected Covid-induced market decline, but they actually performed significantly less well when the overall market recovered,” they wrote.

Including the 2008 financial crisis, the authors determined that liquidity and intangible assets were the best predictors of returns during crisis periods, rather than ESG factors.

Full story
Paper: ESG Didn’t Immunize Stocks Against the COVID-19 Market Crash

2) Eurozone Industry Fears EU's 'Green Recovery' Will Be Shortlived
Financial Times, 24 August 2020

Economists and manufacturers worry the honeymoon phase for factories will run out of steam

European manufacturing’s bounceback from its pandemic-induced crash this spring is slowing — and in Germany, the region’s industrial heartland, executives worry that the recovery could soon run out of steam, leaving them with years of painful rebuilding ahead.

Manufacturing activity and output in the eurozone continued to rise in August, according to the IHS Markit flash purchasing managers’ eurozone manufacturing index published on Friday, but at a slower rate than in previous months.

While German manufacturing activity continued to increase, there was a surprise contraction in France and some economists expect to see a softening in Italy and Spain when their sentiment data is published next week.

This suggests that although eurozone factory production, orders and exports data all rebounded sharply in June, they are likely to have lost some momentum over the course of the summer.

High-frequency data such as heavy goods traffic on German toll roads — which are more up-to-date than official economic indicators but are experimental and the extent to which they reflect subsequent trends in official data is variable — have returned close to pre-crisis levels.

However, industrialists and economists worry that the rebound may soon fade. [...]

The 22.5 per cent rise in industrial production across the eurozone in May and June only clawed back part of the record 28 per cent drop in output suffered in the first two months of the pandemic, when many factories cut back production or closed during lockdown. By June, industrial output was still 12 per cent down on the same time last year.

Germany’s central bank said last week that, despite the recent rebound, eurozone manufacturers were only operating at 72 per cent of their total capacity in July — well below their long-term average of above 80 per cent.

One of the hardest hit sectors has been the carmaking industry, which directly employs 830,000 people and supports a further 2m jobs while accounting for about 5 per cent of Germany’s total economic added value.

IHS Markit forecasts that global car sales will fall from 88m last year to 69m this year. Markus Duesmann, head of Audi, has predicted that pre-crisis levels of car production will “not be reached before 2022 or 2023”.

Full story (£)
3) Councils Forced To Reverse Street Closures After Backlash To Govt’s ‘Green’ Anti-Car Scheme
The Sunday Telegraph, 23 August 2020

Councils have been forced to perform a humiliating U-turn on Grant Shapps’ green roads policy, after residents across the country revolted against the street closures.

The Transport Secretary unveiled a £250 million scheme this summer which gave local authorities extra powers to close roads to cars and expand cycle lanes without running consultations.

But “furious” residents from Brighton to Edinburgh protested against the “stupid” changes, saying it has led to increased congestion, impacted local businesses, and created problems for emergency service vehicles.

The growing backlash has this week led to numerous councils reversing the road closures, including Harrow in north west London, which abandoned proposals for four low-traffic neighbourhoods.

One councillor said the plans amounted to “using a sledgehammer to crack a nut” and that there were fears the lanes would cause “absolute chaos” when schools reopen in September.

Full story (£)
4) Jonathan Ford: Green Ambition Has Short-Circuited California’s Power Supply
Financial Times, 22 August 2020
Approaching energy transition piecemeal can expose system’s fragility and lead to higher prices

Five years ago, Elon Musk gave a speech before an admiring crowd in California in which he outlined his big idea for “a fundamental transformation of the way we deliver energy here on earth”.

Generation wasn’t the issue, explained the solar entrepreneur. There already existed technology that could generate power without producing carbon emissions. “We have this handy fusion reactor in the sky called the sun,” Mr Musk quipped. “You don’t have to do anything, it just works. It shows up every day and produces ridiculous amounts of power.” 

The key challenge was to get round the next obvious problem — how to make power at night or on dull days when the sun wasn’t shining. But Mr Musk had the answer to that too: battery storage. And with that he unveiled his new product, the Tesla Powerwall, an electricity storage system that hangs on the wall of a garage.

“You can basically make all electricity generation in the world renewable and primarily solar,” Mr Musk said, before adding: “I think it’s something that we must do and that we can do and that we will do.” 

The speech, recounted in a new book, Apocalypse Never, by the environmental activist and pro-nuclear campaigner, Michael Shellenberger, goes some way to explaining why California has just experienced its first electricity blackouts for two decades. 

The US state has followed at least part of Mr Musk’s prescription, building plenty of renewable capacity. It now generates a third of its electricity from renewables such as solar and wind. What it hasn’t done so much is to commission lots of new back-up, whether non-intermittent generation or batteries such as scaled-up versions of Mr Musk’s Powerwalls. California has only about 500 megawatts (MW) of battery storage capacity. 

Instead, it has relied on other states selling it their power surpluses to fill in gaps in its increasingly intermittent system, creating a wider network called the “Western Energy Imbalance Market”. This innovation has allowed the state to claim it has shaved some costs by exploiting generation synergies. In the five years to 2018, California’s independent systems operator claimed gross consumer benefits of $122m.

These rather trivial gains must now be weighed in the balance against the outages Californian consumers have experienced in the recent “heat storm” — events that, the last time they happened in 2001, cost the then governor Gray Davis his job.

Solar might seem well designed to meet the greater demands for power hungry air conditioning in a heatwave. But the problem comes when the sun starts setting, solar output plummets and yet evening demand remains stubbornly high. It becomes even worse if the wind doesn’t blow when it is most needed. Then the essential fragility of the system is revealed, with its dependence on gas back-up or external supplies.

Of course, California is not alone in finding hidden pitfalls in energy transition. Germany too has installed heaps of renewables, only to find costs rising and emissions stalling because of the need to deploy fossil fuel generation to back up that green capacity. (California faces higher prices also: since 2011, they have increased six times faster than in the rest of the US).

It is a problem that is compounded by the perverse decision of both Berlin and Sacramento to retire fully-depreciated existing nuclear plants early, knocking out reliable and cheap carbon-free capacity and making the system more fragile. Germany’s policy is well-known, but California has also already closed one of its last two plants, at San Onofre, early. It plans to shut the last one, Diablo Canyon, in just four years’ time.

Michael Liebreich, of Bloomberg New Energy Finance, a strong advocate of renewables, has said that keeping such plants open is an “overwhelming priority”.

Nor does battery storage yet provide a practicable solution. As Shellenberger points out, California’s biggest facility, the lithium ion battery plant at Escondido, has the capacity to power 24,000 homes for four hours. California alone has 13m households, and there are 8,760 hours in a year. 

Even assuming anticipated savings in battery costs estimated by the US Department of Energy by 2025, a single Escondido would still cost $43m. That’s better news for vendors such as Mr Musk than for energy consumers. Meanwhile, as Californians are discovering, buying from out of state only works if they have surpluses to sell.

As the American wit HL Mencken once said: “There is a well-known solution to every human problem — neat, plausible and wrong.” Among these may be the thought that we can dash to very high levels of renewables with the aim of achieving net zero in the short timetables many countries are setting themselves.

We need a balanced system that is both cost-effective and delivers power reliably. Otherwise the consumer may come to equate energy transition with the misery of rising prices and power cuts.
5) Robert Bryce: Green California Faces Dark Future
Forbes, 18 August 2020
Californians now rely on an electricity network that looks and acts more like a grid you’d find in Beirut or Africa than ones in Europe or the United States. 

The blackouts that hit California over the past few days exposed the fragility of one of the most-expensive and least-reliable electric grids in North America. They also show that California’s grid can’t handle the load it has now, much less accommodate the enormous amount of new demand that would have to be met if the state attempts to “electrify everything.”
The push to electrify everything would prohibit the use of natural gas in buildings, electrify transportation, and require the grid to run solely on renewables (and maybe, a dash of nuclear). But attempting to electrify the entire California economy will further increase the cost of energy at the very same time that the state’s electricity rates are soaring. That will result in yet-higher energy costs for low- and middle-income Californians.

Over the last year or so, the Sierra Club, along with the Rocky Mountain Institute and other groups, have been pushing local governments to prohibit natural gas use and force consumers to rely solely on electricity. In July 2019, Berkeley became the first city in the United States to pass a ban on natural gas hookups in new buildings. Since then, about 31 other local governments in California have passed restrictions or bans on the use of natural gas. Last month, the Sierra Club gleefully announced that the city of Piedmont had committed “to going gas-free.”

These restrictions are being labeled as an essential part of California’s efforts to slash its greenhouse gas emissions. But in practice, they are regressive energy taxes that will hurt low- and middle-income consumers and in doing so, exacerbate California’s poverty problem. 

California may be known for Silicon Valley and the beauty of its mountains and beaches, but it also has the highest poverty rate of any state in America. When accounting for the cost of living, 18.1% of the state’s residents are living in poverty. For perspective, that means that roughly 7 million Californians — a population about the size of Arizona’s — are living in poverty. 

As I show in a recent report for the Foundation for Research on Equal Opportunity, Californians are also paying some of America’s highest energy prices. For instance, the average cost of residential electricity in California last year was 19.2 cents per kilowatt-hour, which is 47% higher than the national average of about 13 cents per kilowatt-hour.

Restrictions on natural gas are popular in the Bay Area and Silicon Valley. Municipalities in Silicon Valley that have passed restrictions include Cupertino, the home of Apple; Mountain View (Alphabet); and Menlo Park (Facebook). Those restrictions may be politically popular, but the regressive effects of the electrify everything push cannot be ignored. Banning the direct use of natural gas for cooking, home heating, water heaters, and clothes dryers, will force Californians to instead use electricity which, on an energy-equivalent basis, costs four times as much as natural gas. 
Full post
6) Fossil Fuel Car Ban ‘Will Close Cheapest Route To Cutting CO2’
Transport Xtra, 22 August 2020
Banning the sale of fossil fuel cars and vans as a way of promoting battery electric vehicles is a high-cost strategy that will close the door to technological advances in greener internal combustion engines, an industry expert has warned. 

The Government consulted this spring on banning the sale of new cars and vans with an internal combustion engine (ICE) from 2035 or possibly earlier (LTT 06 Mar). The Committee on Climate Change has suggested 2030. 

The Prime Minister has proposed that the ban should apply to conventional ICEs and hybrid vehicles. This would restrict choice to only battery electric vehicles (BEVs) and fuel cell vehicles running on hydrogen.

Gautam Kalghatgi criticises the policy in a paper published by the Global Warming Policy Foundation think tank. Kalghatgi is a fellow of the Royal Academy of Engineering, the Institute of Mechanical Engineers, the Society of Automotive Engineers, and a visiting professor at Oxford University. 

“All available technologies, including ICEVs, BEVs, fuel-cell vehicles and alternative fuels are required to improve the sustainability of transport,” he says. “Banning the most common of these technologies, and the one with the most potential for improvement, namely ICEVs, is not sensible.”

BEVs are not zero emission when viewed on a lifecycle basis. “It takes more energy to manufacture a BEV than an internal combustion engine vehicle (ICEV), because the manufacture of batteries is very energy intensive. In addition, the end-of-life recycling cost is higher for a BEV than for an ICEV. 

“As a result, in the UK, only BEVs with small batteries have lower lifetime emissions than ICEVs. As battery size increases to enable bigger cars and longer range, the CO2 footprint of BEVs surpasses that of equivalent ICEVs, even if the electricity used is increasingly carbon-free. 

“Therefore, even converting all of the UK’s 37 million light duty vehicles (cars and vans) to battery power would not decarbonise the transport system to any great extent.” 

Increasing the number of BEVs in the UK to ten million from the current 100,000 would “at best save about four per cent of the greenhouse gas emissions associated with transport in the UK”, he estimates. 

This will come at enormous  taxpayer expense. “Mass conversion to BEVs will require huge spending on CO2-free electricity generation and the necessary public infrastructure for charging. The electricity distribution network will need to be significantly altered.”

It will also place huge demands on raw materials. “To replace all light duty vehicles in the UK with BEVs would require twice the total annual world cobalt production, nearly the entire world production of neodymium, three-quarters the world’s lithium production and at least half of the world’s copper production during 2018,” Kalghatgi believes. 

A ban on sales of new ICEVs will deprive the country of the opportunity to gain from technological developments in this field, he adds. “A five per cent reduction in the fuel consumption of ICEs will deliver a greater reduction in greenhouse gases [than ten million BEVs], and this, moreover, while using existing infrastructure.

“It is highly unlikely that technology would fail to deliver such modest progress by 2030. In fact, there is scope for far greater reductions in fuel consumption. Better combustion and control systems, partial electrification, and reductions in weight could conceivably deliver reductions of 50 per cent.”

Such reductions will, however, “require sustained research effort” and much of the gain could come after a UK ban comes into force. 

Full story
7) How Eco-Warriors Are Using Covid As An Excuse To Drive Cars Off The Road
David Rose, Mail on Sunday, 23 August 2020

Councils are closing roads and creating more cycle lanes, piling new agony on shops... all under the guise of saving us from the virus.  

London, Oxford, Manchester, Birmingham, York, Edinburgh, Nottingham, Derby and Cardiff are all in line for Government funding to install 'green' measures

Roads narrowed so that pavements can be widened. Streets reduced from two lanes to one. Extra cycle lanes.
Town-centre parking spaces suspended. Major diversions. Under the guise of protecting us from Covid, councils all across the country have introduced a host of tough restrictions on motorists.
Of course, everything necessary must be done to prevent the spread of coronavirus but many believe this is being done as an excuse to punish drivers as part of a wider campaign against car use.
What’s more, these measures are killing trade on high streets at a time when the economy is in desperate need of all the help it can get. [...]
The impact on businesses has been devastating, but more road closures – another 12, the city council warns – are imminent.
The Government is spending £225 million on similar measures across the country, most notably in London, Oxford, Manchester, Birmingham, York, Edinburgh, Nottingham, Derby and Cardiff.
Full story
8) And Finally: Greta Thunberg ‘Losing Relevance’ In Wake Of Global Pandemic
Sky News, 14 August 2020
Climate activists like Greta Thunberg are having to grapple with their sudden loss of relevance in the wake of the COVID-19 pandemic, according to Sky News host Andrew Bolt.

click on image to watch the Sky News video

The London-based Global Warming Policy Forum is a world leading think tank on global warming policy issues. The GWPF newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at

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