US warms to ESG theme

After lagging behind Europe on environmental, social and governance (ESG) matters, the US has “warmed up” to the theme and developing companies in this space, according to Pengana.  

Speaking on a webinar, Ted Franks, portfolio manager on the  Pengana WHEB Sustainable Impact fund, said he found more opportunities in the US than before. The fund now had over half of its exposure in North America and 20% in Europe. 

At this month’s United Nations Climate Change Conference (COP26), US President Biden announced US$555 billion ($746 billion) in clean energy tax credits and incentives but did not lay out short-term targets for emission reductions. 

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“Traditionally, Europe has been stronger on impact and ESG companies so the universe has been overweight to Europe and they can tell a better long-term story about being driven by sustainability,” Franks said. 

“What has happened now is the US has warmed up enormously particularly with the listing of special purpose acquisition companies (SPACs). Quite a lot of interesting sustainability companies have come to market in the last year and a half.” 

SPACs were defined as a company without any commercial operations that were formed to raise capital through an initial public offering for the purpose of acquiring or merging with an existing company. 

However, not all of these SPAC opportunities were viable options for investment, Franks said. 

“Most of these have been grossly overvalued and have struggled to raise finance,” he said. 

“The pickings of the right companies through SPACs has been thin and we are quite skeptical about it but that is where the new, interesting companies are coming from that we wouldn’t have had access to before. 

“It’s a flowering of US venture capital, whether from Silicon Valley or the industrial complex, these interesting companies are available in public markets and that’s definitely of interest to us.” 

Meanwhile, he said a unified price mechanism for carbon would be a big achievement from the COP26. 

“Any economist who works in sustainability has wanted a carbon price and a meaningful global carbon price but that’s potentially la la land, it might be a million miles away,” Franks said. 

“But we could see some sort of mechanism around unifying the existing carbon price markets and encouraging more companies and countries to join that. That would be the single, most powerful thing that could happen. 

“Realistically, I’m afraid I will be pleased if we get more than a series of small pledges and platforms around subsidiary issues like deforestation, shipping and aviation. If we don’t get a decent slew of commitments then we aren’t doing particularly well.” 

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