Sakorn Sukkasemsakorn/iStock via Getty Images
Sakorn Sukkasemsakorn/iStock via Getty Images
To celebrate Climate Week 2022, learn from Senior Research Analyst Ola El-Shawarby about how VanEck's emerging markets equity team considers climate-related risks and opportunities as well as specific stocks that may benefit from the energy transition in their decision making processes.
Which unique climate-related factors are driving investment decisions and engagement with companies?
Given that we're focused on secular growth trends that are long term, they tend to align very nicely with sustainability and sustainable goals. We really take it on a case by case basis as opposed to adopting a checklist approach. We think that really gives us the opportunity to focus more specifically on material issues as far as climate goes, that tend to typically impact this particular sector or a particular company, rather than trying to apply a blanket approach.
That could be things like carbon emissions, it could be waste management, energy efficiency and sustainability. A variety of factors, but the key here is that we focus on material factors that impact the particular companies and that's also to a large extent because we are a very bottom up focused fund and strategy. We invest in companies, not just themes or ideas.
What are some of the climate-related trends and themes that can be observed?
With everything that is going on and the focus on environmental trends, sustainability and climate change, there are a lot of opportunities and risks that come along with that.
What we try to do when we look at the different companies in our portfolio, or the ones that we consider investing in, is to really think about where the opportunities and risks might lie as far as climate factors go.
Some of the companies will be beneficiaries of specific themes or trends that are arising on the back of the focus on climate change. That could include things like electrification and green energy transition, which more recently with the war in Ukraine became not just a climate issue, but also an energy security issue.
That's one bucket. We also have other companies that might be, as a result of certain superior environmental practices, benefiting from competitive advantages that put them at a favorable position with either the consumer or compared to their peers.
We also have some companies that are really trying to move towards better environmental practices and sustainability practices as a way to manage their own risk, and that could be cost factors or fear of regulatory penalties.
What we love to talk about is always stocks, so I think that giving some examples to showcase how we think about opportunity or risk as far as ESG, and more specifically climate factors go, would be helpful.
One example that is a direct beneficiary of the theme of electrification, which is obviously now gaining a lot of traction, is a company called LG Chem (OTCPK:LGCLF), a Korean company. Historically, it has been one of the largest producers of petrochemicals in Korea. More recently, and what we think is exciting about the company and we believe will drive value and growth going forward, is their relatively newer sub-segment which is advanced materials, and within that, battery component production.
Those guys are actually one of the largest producers of nickel cathodes, which is a key component for batteries for electric vehicles and are actually quite hard to manufacture.
With that in mind, they benefit quite significantly, in terms of growth, from the rising demand for electric vehicles and also the anticipated increase in EV (electric vehicle) penetration going forward. They produce these components and sell them to battery makers. That is going to be a key driver for earnings growth going forward. On top of that, they are also thinking very seriously and trying to introduce a lot of programs that focus on plastic recycling when it comes to their traditional petrochemicals business. This is also something that we highly encourage.
Finally, they are also majority owner of LGES (LG Energy Solution). They own more than 80% of a company called LGES, which is the largest battery manufacturing company outside of China. It is a direct beneficiary of the electrification theme and overall we particularly like the story because, to our earlier discussion about the direction of travel and improvement, this is a company that is in transition from a sector that traditionally has been somewhat controversial when it comes to climate factors into one that is actually directly aligned with better longer-term sustainability and electrification.
This is one example. Another one that also is a direct beneficiary of some of the climate-related themes is a company called Sungrow Power Supply, it is a company in China. They manufacture solar inverters, which are one of the key equipment components when it comes to energy solar energy systems. They also produce energy storage systems. They are one of the largest global producers of solar inverters, I think they have globally something more than 25% market share. They are also one of the largest exporters out of China of energy storage systems.
If you think about renewable energy and how much there is a rise in demand for renewable energy sources, including solar, those guys are directly well positioned to benefit from that growth and that rise in demand. Again, here it is an opportunity that is a direct result of some of these longer-term themes that relate to climate change factors.
As of 8/31/2022, 2.56% of LG Chem Ltd. (owner of LGES) is held in the VanEck Emerging Markets Strategy.
As of 8/31/2022, 1.34% of Sungrow Power Supply Co., Ltd. Class A is held in the VanEck Emerging Markets Strategy.
The views and opinions expressed are those of the speaker and are current as of the video's posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results. Any discussion of specific securities mentioned in the video commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its employees. Past performance is not a guarantee of future results.
Sustainable Investing Considerations: Sustainable investing strategies aim to consider and in some instances integrate the analysis of environmental, social and governance (ESG) factors into the investment process and portfolio. Strategies across geographies and styles approach ESG analysis and incorporate the findings in a variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit the portfolio manager's ability to participate in certain investment opportunities that otherwise would be consistent with its investment objective and other principal investment strategies.
ESG investing is qualitative and subjective by nature, and there is no guarantee that any of the proprietary assessments of material ESG issues or the factors used by VanEck, or any judgment exercised by VanEck will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and VanEck is dependent on such information to evaluate a company's commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful. An investment strategy may hold securities of issuers that are not aligned with ESG principles.
ESG integration is the practice of incorporating material environmental, social and governance (ESG) information or insights alongside traditional measures into the investment decision process to improve long term financial outcomes of portfolios. Unless otherwise stated within an active investment strategy's investment objective, inclusion of this statement does not imply that an active investment strategy has an ESG-aligned investment objective, but rather describes how ESG information may be integrated into the overall investment process.
Emerging Market securities are subject to greater risks than U.S. domestic investments. These additional risks may include exchange rate fluctuations and exchange controls; less publicly available information; more volatile or less liquid securities markets; and the possibility of arbitrary action by foreign governments, or political, economic or social instability.
Depositary receipts are receipts listed on U.S. or foreign exchanges issued by banks or trust companies that entitle the holder to all dividends and capital gains that are paid out on the underlying foreign shares. Investments in depositary receipts may be less liquid than the underlying shares in their primary trading market. The issuers of depositary receipts may discontinue issuing new depositary receipts and withdraw existing depositary receipts at any time.
Investing involves risk, including possible loss of principal. Please call 800.826.2333 or visit vaneck.com for a free prospectus and summary prospectus. An investor should consider the investment objective, risks, and charges and expenses of the investment company carefully before investing. The prospectus and summary prospectus contain this and information about the investment company. Please read the prospectus and summary prospectus carefully before investing.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.
Van Eck Securities Corporation, Distributor 666 Third Avenue, New York, NY 10017
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
This article was written by