Over the past few years, a deluge of do-good ETFs flooded U.S. exchanges and drew in billions of investor dollars. However, the global energy crisis, inflation and fears of recession have forced ESG (environmental, social and governance) investing to take a backseat with energy security and portfolio protection emerging as the top priorities. Indeed, a number of Big Oil companies recently scaled back their clean energy investments and climate goals as they look to expand fossil fuel production.
But that does not in any way mean that ESG is dead. A recent Deutsche Bank survey found that 53% of investors regard climate change as the most important factor affecting their investment decisions, up from 47% in 2021, while another study by PwC found that ESG issues are now among investors’ top 5 concerns, with 44% of investors citing the need to reduce greenhouse gas emissions.
ESG funds come in many shapes and forms. It’s, therefore, not surprising to learn that giant automakers and even Big Oil companies are now among the top holdings of some ESG funds. Last year, Engine No. 1, the investment firm that succeeded in forcing Exxon Mobil (NYSE:XOM) to adopt more strict climate goals, launched the Transform Climate ETF (ticker: NETZ). As part of its investment ethos, NETZ says it “...invests in stocks of companies that are deemed socially conscious in their business dealings and directly promote environmental responsibility”.
And guess what? General Motors Co. (NYSE:GM) is currently the fund’s fourth largest holding while Occidental Petroleum (NYSE: OXY) was once one of its top 3 holdings at some point last year. According to Engine No. 1, the path to cutting carbon emissions has to go through the largest emitters and investing in legacy companies that will drive and benefit from the energy transition.
But Engine No. 1 is hardly alone; for a number of years now, GM has been considered an ESG play:
“GM has found a new life as an ESG play. We do have a sustainability fund that owns it in part because of their commitment to electrification. Mary Barra has been pretty vocal about that obviously, and it looks like it’s for real,” Christopher Marangi, Gamco’s value co-chief investment officer, told Bloomberg TV’s Surveillance in 2021.
GM is one of the legacy automakers with the biggest clean energy investments, and nowhere is its presence felt more than in the EV sector. In 2022, GM delivered 39,096 all-electric vehicles in the U.S., up 57% year-over-year. While that figure accounts for just 1.7% of GM's total volume sold and cannot handle a candle to Tesla Inc’s (NASDAQ:TSLA) 1.3M EV sales, GM might turn the tables on Tesla a few years down the line. GM CEO Mary Barra has revealed that the company plans to produce ~400,000 electric vehicles from 2022 through the first half of 2024, and that the company will be capable of annual EV production of more than one million in North America in 2025. Indeed, GM could overtake Tesla in just two years: a 2022 "Car Wars" report has forecasts that GM and Ford Motors (NYSE:F) each will have roughly 15% EV market share in 2025 while Tesla will plummet from 70% to 11% with new products like the F-150 Lightning and Silverado EV electric pickups driving the spectacular growth. Tesla appears set to lose its dominant EV market share because both legacy automakers are expanding their portfolios and lineups at a much faster clip.
To power the EV explosion, GM has been pursuing a plethora of EV and battery projects. The company is already hard at work on its Ultium battery technology; a flexible battery architecture that offers greater energy density, lower projected costs and increased range. Further, GM is investing $650 million in a mining company, Lithium America, to develop a Nevada mine extracting lithium, a critical battery ingredient, with production expected to kick off in 2026. GM's investment will be used to develop the Thacker Pass project in Nevada, the largest known lithium resource in the U.S.
Meanwhile, GM’s new battery plant in Ohio began production in August while a second battery plant is slated to open in Tennessee in the current year. GM has already started selling some high-end electric vehicles using battery packs made in its Ohio factory and expects its EV sales to increase sharply this year as it adds more affordable models such as the electric Chevrolet Equinox, electric Chevrolet Silverado pickup truck and Blazer sport utility vehicles. Overall, GM plans to have nine EV models available in the United States by the end of the year compared to four car models by Tesla.
By Alex Kimani for Oilprice.com
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