FT : How ESG strategies hurt emerging markets

How ESG strategies hurt emerging markets
Plus, the comment period on the SEC’s big climate proposal comes to an end

Criticisms of the environmental, social and governance investment agenda have been flowing thick and fast in recent weeks, whether from Republican politicians or from HSBC’s Stuart Kirk. Today, we consider a question that should be particularly uncomfortable for the sustainable investing world: is the ESG framework steering capital away from developing nations that need it most desperately?

The report that we dig into below argues that there are some worrying flaws with today’s ESG paradigm, with an emphasis on risk aversion that threatens to undermine financial support for sustainable development in poorer countries.

Are these concerns justified, and if so how can they be addressed? We’d love to hear the thoughts of our readers — particularly those based in developing nations. You know where to find us: moralmoneyreply@ft.com. (Simon Mundy)

ESG and emerging markets: Doing more harm than good?
Undermining development in poor countries is not something any investor would want to achieve with an ESG strategy. But that is precisely what seems to be happening, according to a troubling report out this week.

The study, carried out for the UK government by the consultancy Intellidex, aimed to identify the big impediments to capital flows into developing countries, through interviews with 52 market professionals. One of the biggest obstacles, it found, is the rise of ESG strategies.

“It was a surprise to me, to what extent ESG — as it’s practised — is not aligned with the SDGs,” Intellidex co-founder Stuart Theobald told Moral Money, referring to the UN’s 17 Sustainable Development Goals, which target issues ranging from hunger to education.

The key problem, according to the report, is the emphasis that many ESG strategies put on avoiding risk — especially of the reputational sort — rather than achieving positive impact. That very often leads investors to “downweight” developing markets, or avoid them altogether — either because of concerns about social and governance flaws, or a simple lack of data.

That ESG headwind is the last thing these countries need amid a broader souring of investor sentiment as global interest rates rise. Emerging market bonds have been suffering their steepest falls for almost three decades. There have been sharp outflows, too, from equities in developing countries, which have been underperforming in recent years.

So what’s the answer? An obvious one is tackling that lack of data. Intellidex is urging development institutions to help create user-friendly platforms that EM businesses can use to share the ESG data sought by investors. Fuller and more frequent reporting of economic data by national governments could also have a big impact.

But the effect of such measures can only go so far without a fundamental rethink of the ESG paradigm, Theobald argues. “Do we merely want to have capital swerving certain issuers, or do we want capital to be flowing towards opportunities to deliver on our social and environmental objectives?” While much ESG reporting is preoccupied with dodging risks, Intellidex argues for a far greater emphasis on “additionality”, centred on how far investments further the SDGs.

“A lot of investor behaviour is about reputational risk fundamentally. It’s about being nervous about anything that might bite you,” Theobald said. “If you want to make a big difference, you have to trade in harder, more difficult markets, and you’ve got to have a risk appetite for that.”

ESG investors’ nervous approach to frontier markets might be understandable. But if their strategies are impeding urgently needed capital flows, that looks like a pretty dire risk in itself — reputational and otherwise.

>>> US Gapping down

Gapping down
In reaction to earnings/guidance
:

  • ADBE -3.4%

Other news:

  • RYTM -5.1% (FDA issues CRL for the sNDA for setmelanotide in Alström syndrome; FDA approves sNDA for IMCIVREE; also enters into Revenue Interest Financing Agreement with HealthCare Royalty for a total investment up to $100 mln)
  • CO -2.3% (FDA recently cleared Cellenkos' IND application for CK0804 as add on therapy to Ruxolitinib)
  • FTI -2.2% (awarded a significant contract by TotalEnergies EP Angola)
  • OWL -1.5% (files $1 bln mixed securities shelf offering)
  • TRGP -0.8% (to acquire Lucid Energy for $3.55 bln; also updates 2022 standalone outlook)

Analyst comments:

  • DFH -5.1% (downgraded to Underperform from Neutral at BofA Securities)
  • AEO -1.7% (downgraded to Neutral from Buy at B. Riley Securities)
  • DOW -0.8% (downgraded to Neutral from Buy at Citigroup)
  • CF -0.7% (downgraded to Neutral from Buy at Citigroup)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance
:

  • X +6.4% (issues upside EPS guidance), CNC +2.3% (raises FY22 outlook ahead of Investor Day; authorizes $3.0 bln increase to existing stock repurchase program)

Other news:

  • REV +81% (Reliance mulling buyout of REV according to Economic Times)
  • EFC +5% (reports book value per share)
  • JG +4.9% (receives RMB15 mln in special support funding from the Shenzhen Development and Reform Commission)
  • CTRN +4.4% (names new CFO)
  • ROKU +4.2% (ROKU and
  • WMT announce partnership to bring comerce to TV ads)
  • SRRA +3.8% (announces submission of new drug application for Momelotinib to FDA)
  • BITF +3.8% (entered into an equipment financing agreement with initial funding of $37 million)
  • BHC +3% (provides update on Solta Medical; IPO process suspended in light of market conditions)
  • ZIP +2.9% (authorizes $150 mln increase to share repurchase program)
  • REAX +2.5% (surpasses milestone of 5000 agents)
  • BGS +2.4% (forms four business units)
  • WPC +2.3% (increases dividend)
  • UWMC +2.2% (CFO takes leave of absence for health reasons)
  • ZI +1.8% (settles lawsuit with Bombora)
  • TWI +1.6% (entered into a global long-term agreement with Deere (DE) on June 13 to supply wheels and tires)
  • DAN +1.5% (awarded a $2.7 million (£2 million) grant to develop an e-Powertrain for OX Delivers)
  • AJRD +1.4% (CEO Eileen Drake and Committee for Aerojet Rocketdyne Shareholders and Value Maximization Extremely Pleased with Delaware Court's Opinion)
  • GVA +1.3% (awarded two contracts worth a combined $38 mln)
  • OAS +1.2% (declares $15 special dividend in connection with closing of merger with WLL)
  • OEC +1% (to raise prices for rubber carbon black products)
  • JATT +1% (JATT Acquisition Corp and Zura Bio Limited announce definitive business combination agreement to create NYSE listed biotechnology company)

Analyst comments:

  • AZEK +4.7% (upgraded to Buy from Neutral at BofA Securities)
  • COF +2.1% (upgraded to Outperform from Neutral at Robert Baird)
  • AXP +2% (upgraded to Outperform from Neutral at Robert Baird)

>>> US Research Calls I

Research Calls I

  • Upgrades:
    • American Express (AXP) upgraded to Outperform from Neutral at Robert W. Baird; tgt $175
    • AZEK (AZEK) upgraded to Buy from Neutral at BofA Securities; tgt lowered to $22
    • Capital One (COF) upgraded to Outperform from Neutral at Robert W. Baird; tgt $145
    • Equinor (EQNR) upgraded to Neutral from Underweight at JP Morgan
    • Fifth Third (FITB) upgraded to Outperform from Neutral at Robert W. Baird; tgt $44
    • M&T Bank (MTB) upgraded to Outperform from Neutral at Robert W. Baird; tgt $200
    • NextEra Energy Partners (NEP) upgraded to Outperform from Sector Perform at RBC Capital Mkts; tgt raised to $89
    • Utz Brands (UTZ) upgraded to Buy from Neutral at Goldman; tgt $16
    • ZIM Integrated Shipping (ZIM) upgraded to Neutral from Underweight at JP Morgan; tgt raised to $53.30
  • Downgrades:
    • American Eagle (AEO) downgraded to Neutral from Buy at B. Riley Securities; tgt lowered to $13
    • CF Industries (CF) downgraded to Neutral from Buy at Citigroup; tgt lowered to $99
    • Dow (DOW) downgraded to Neutral from Buy at Citigroup; tgt lowered to $60
    • Dream Finders Homes (DFH) downgraded to Underperform from Neutral at BofA Securities; tgt lowered to $10.50
    • MDC Holdings (MDC) downgraded to Underweight from Equal Weight at Wells Fargo; tgt $27
    • Meritage (MTH) downgraded to Underweight from Equal Weight at Wells Fargo; tgt $65
    • Olin (OLN) downgraded to Neutral from Buy at Citigroup; tgt lowered to $55
    • Owens Corning (OC) downgraded to Underperform from Buy at BofA Securities; tgt lowered to $80
    • PROG Holdings (PRG) downgraded to Mkt Perform from Outperform at Raymond James
    • Roblox (RBLX) downgraded to Hold from Buy at Truist; tgt lowered to $29
    • Toll Brothers (TOL) downgraded to Equal Weight from Overweight at Wells Fargo; tgt $48
    • Urban Outfitters (URBN) downgraded to Neutral from Buy at B. Riley Securities; tgt lowered to $23
    • Westlake Corporation (WLK) downgraded to Neutral from Buy at Citigroup; tgt lowered to $114
  • Others:
    • Acadia Healthcare (ACHC) initiated with a Hold at Loop Capital; tgt $72
    • Anthem (ANTM) initiated with a Buy at Loop Capital; tgt $550
    • Apellis Pharmaceuticals (APLS) resumed with a Buy at Stifel; tgt $60
    • APi Group (APG) initiated with a Neutral at JP Morgan; tgt $17
    • Archaea Energy (LFG) initiated with an Overweight at Barclays; tgt $26
    • Beam Global (BEEM) initiated with a Buy at B. Riley Securities; tgt $23
    • Beam Therapeutics (BEAM) initiated with a Market Perform at BMO Capital Markets; tgt $41
    • BeiGene (BGNE) initiated with a Buy at CMB Int'l
    • Blink Charging (BLNK) initiated with a Neutral at B. Riley Securities; tgt $15
    • Broadmark Realty (BRMK) initiated with a Neutral at Piper Sandler; tgt $7
    • Centene (CNC) initiated with a Buy at Loop Capital; tgt $100
    • Centessa Pharmaceuticals (CNTA) initiated with an Outperform at BMO Capital Markets; tgt $19
    • Cigna (CI) initiated with a Hold at Loop Capital; tgt $270
    • Community Health (CYH) initiated with a Hold at Loop Capital; tgt $5
    • CC Neuberger Principal Holdings II (PRPB) initiated with a Buy at The Benchmark Company; tgt $12
    • CRH Plc. (CRH) resumed with a Buy at Citigroup
    • CRISPR Therapeutics (CRSP) initiated with an Outperform at BMO Capital Markets; tgt $98
    • CVS Health (CVS) initiated with a Buy at Loop Capital; tgt $120
    • Grab (GRAB) initiated with a Buy at Deutsche Bank; tgt $3.20
    • Graphite Bio (GRPH) initiated with an Outperform at BMO Capital Markets; tgt $12
    • HCA (HCA) initiated with a Buy at Loop Capital; tgt $240
    • Hub Group (HUBG) initiated with a Buy at The Benchmark Company; tgt $90
    • Humana (HUM) initiated with a Buy at Loop Capital; tgt $510
    • Intellia Therapeutics (NTLA) initiated with a Market Perform at BMO Capital Markets; tgt $54
    • Legend Biotech (LEGN) initiated with an Outperform at BMO Capital Markets; tgt $77
    • Molina Healthcare (MOH) initiated with a Hold at Loop Capital; tgt $310
    • Precision BioSciences (DTIL) initiated with an Outperform at BMO Capital Markets; tgt $7
    • Tritium DCFC (DCFC) initiated with a Buy at B. Riley Securities; tgt $12
    • Tenet Healthcare (THC) initiated with a Buy at Loop Capital; tgt $80
    • UnitedHealth (UNH) initiated with a Buy at Loop Capital; tgt $575
    • Universal Health (UHS) initiated with a Hold at Loop Capital; tgt $115
    • Verve Therapeutics (VERV) initiated with an Outperform at BMO Capital Markets; tgt $48
    • ZimVie (ZIMV) initiated with a Neutral at JP Morgan; tgt $20

>>> US Early premarket gappers

Early premarket gappers

  • Gapping up:
    • X +7.3%, JG +6.9%, UWMC +6.6%, MEI +5%, ROKU +4.8%, AJRD +4.6%, CTRN +4.4%, ZIP +3.8%, BALL +3.2%, BHC +3%, REAX +2.5%, BGS +2.4%, WPC +2.3%, CO +1.7%, GVA +1.3%, OAS +1.2%, TGT +1.1%, OEC +1%
  • Gapping down:
    • RYTM -10.3%, ADBE -3.4%, DRTS -3.2%, EFC -3%, ZI -3%, FTI -2.2%, OWL -1.5%, TRGP -0.8%

>>> Europe : Brokers Upgrades & Downgrades- 17th of June 2022 V2(+)

>>> Up
* Aumann Raised to Buy at Citi; PT 18.50 euros
* Equinor Raised to Neutral at JPMorgan; PT 350 kroner
* E.On Raised to Buy at Goldman; PT 12.50 euros
* Ferrari Raised to Accumulate at Banca Akros (+)
* Frontier Developments Raised to Hold at Numis; PT 1,450 pence
* Hammerson Raised to Hold at SocGen; PT 21.80 pence

>>> Down
* Colruyt Cut to Reduce at HSBC; PT 25 euros
* Elektro Importoren Cut to Hold at DNB Markets; PT 65 kroner (+)
* Eurofins Scientific Cut to Hold at SocGen; PT 80.40 euros
* Volvo Cars Cut to Sell at DNB Markets; PT 62 kronor (+)

>>> Initiation
* Enad Global 7 Rated New Buy at Kepler Cheuvreux; PT 29 kronor (+)
* G5 Entertainment Rated New Buy at Kepler Cheuvreux (+)

>>> Call
* Aumann Upgraded to Buy at Citi on Upside From EV Order Growth
* Citi’s Manthey Likes UK and Swiss Banks’ Resilience to Selloff (+)
* Equinor Raised as Gas Prices Soar, JPMorgan Sees Further Risk (+)

>>> Europe : Brokers Upgrades & Downgrades- 17th of June 2022 V2(+)

>>> Up
* Aumann Raised to Buy at Citi; PT 18.50 euros
* Equinor Raised to Neutral at JPMorgan; PT 350 kroner
* E.On Raised to Buy at Goldman; PT 12.50 euros
* Ferrari Raised to Accumulate at Banca Akros (+)
* Frontier Developments Raised to Hold at Numis; PT 1,450 pence
* Hammerson Raised to Hold at SocGen; PT 21.80 pence

>>> Down
* Colruyt Cut to Reduce at HSBC; PT 25 euros
* Eurofins Scientific Cut to Hold at SocGen; PT 80.40 euros

>>> Initiation
* Enad Global 7 Rated New Buy at Kepler Cheuvreux; PT 29 kronor (+)
* G5 Entertainment Rated New Buy at Kepler Cheuvreux (+)

>>> Call
* Aumann Upgraded to Buy at Citi on Upside From EV Order Growth
* Citi’s Manthey Likes UK and Swiss Banks’ Resilience to Selloff (+)
* Equinor Raised as Gas Prices Soar, JPMorgan Sees Further Risk (+)

>>> Stoxx 600 Pre-Market Indications

  • Prosus (1TY TH) +2%
  • Just Eat Takeaway (T5W TH) +1.8%
  • EssilorLuxottica (ESL TH) +1.8%
    • EssilorLuxottica to Buy Back as Many as 2.5M Shares
  • Imperial Brands (ITB TH) +1.5%
    • Tobacco Credit Profiles Robust Despite M&A and Regulatory Risk
  • E.On (EOAN TH) +1.5%
  • Delivery Hero (DHER TH) +1.2%
  • TUI (TUI1 TH) +1.2%
  • AstraZeneca (ZEG TH) +1.1%
  • Glencore (8GC TH) +1.1%
    • Glencore Trading Profit Is on Course to Smash Through Its Record
  • BP (BPE5 TH) -0.7%
  • Fresenius Medical (FME TH) -0.8%
  • Maersk (DP4B TH) -0.9%
    • AP Moller: Maersk Asia Pacific market update (January 2022) -
  • Tomra (TMRA TH) -1%
  • BE Semiconductor (BSI TH) -1.1%
  • Repsol (REP TH) -1.2%
  • Verbund (OEWA TH) -1.4%
  • Equinor (DNQ TH) -1.8%
  • Shell (R6C0 TH) -1.9%
  • CD Projekt (7CD TH) -3.5%