1、CS Global ESG ResearchSustainable investing performanceupdate & review of the renewable energy supply chain21 August 2020 Equity Research EuropeGlobal ESG Research TeamHead of Global ESG Research Eugene Klerk HYPERLINK mailto:eugene.klerk eugene.klerk+ 44 207 883 4678DISCLOSURE APPENDIX AT THE BACK

2、OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THESTATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a

3、conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Sustainable Investing: key summary and viewsIn this publication we review the performance of our 2 core sustainable investment appr

4、oaches. One uses a systematic methodology that ranks our 11 sustainable investment themes and selects the most attractive stocks within the highest 3 ranked themes. The second approach uses our analysts key ideas across the themes: the Ideas with Impact.In this publication we also review the perform

5、ance of the Renewable Energy space in more detail. The theme scores well below average on financial HOLT metrics such as Quality and Business Sustainability; however, its share price performance since we launched in November last year has been the strongest of all our 11 themes.Our review highlights

6、 that of the 7 sub-themes that make up our renewable energy universe it is the hydrogen and solar exposed companies (installation and manufacturing) that have performed best with a return since November of 208%, 183% and 90% respectively. Renewable Energy operators and Renewable Energy Ancillary ser

7、vice providers have performed least (12% and -0.1% respectively).Our analysis suggests that all 7 groups score relatively poorly on quality and that all groups also appear to be expensive. However, this appears least of a headwind for the best performing stocks since November (Hydrogen and solar) gi

8、ven that their growth expectations (revenue and EBITDA) and momentum characteristics (e.g. earnings revisions) are well above average.We highlight 22 Outperform-rated companies within the renewable energy space, four of which score above average on momentum and conditional probability: RWE, Longyuan

9、 Power, Tongwei and Wacker ChemieRenewable Energy as the best performing themeOur systematic theme selection strategy outperformed the MSCI AC World index by 35 bps during the past month, raising the alpha since launch in November to 526bps in April.We also provide investors with a more analyst-driv

10、en list of companies. These Ideas with Impact all carry an Outperform rating from our analyst. We list these companies on page 29.Table of ContentsChapterPage HYPERLINK l _TOC_250005 Sustainable Investment Strategies: Our Approach 4Sustainable Investment Strategies: Results & Key Stocks 13Key stocks

11、 for the best ranked themes 17Renewable Energy: A supply chain review 19Ideas with Impact: Performance 27Our new Ideas with Impact 29Scatter charts for each of our themes 30 HYPERLINK l _TOC_250004 Ageing 31Building a Zero Carbon World 32Circular Economy Plastic 33 HYPERLINK l _TOC_250003 Diversity

12、34 HYPERLINK l _TOC_250002 Education 35Future of Work Automation 36 HYPERLINK l _TOC_250001 Healthy Living 37 HYPERLINK l _TOC_250000 Infrastructure 38Renewable Energy 39Sustainable Transport 40Water 41Sustainable Investment Strategies: Our approachOur approach: we start with Impact rather than ESG

13、We use a 5 step approach focused on ImpactWe see our themes as structural growth topicsSelecting themes or stocks using external ESG data providers may not be idealInvestors with an Impact focus can use the financials implications that SDGs provideWe use a multi-step process to selecting the most at

14、tractive themes and stocks with Impact Our investment process: From SDG connected theme to stock ideasSelect positiveimpact themesDetermine keystocks per themeApply red flagESG filterIdentify Top 3ThemesIdentify mostattractive companiesSelect themes which positively contribute to achieving the UNs 1

15、7 SDGs For each theme identify universe of stocks with strong exposure to it Manually review the universe of stocks and remove those with significant ESG red - flags Using HOLT Screen for the 3 most attractive themes based on Quality, Momentum and Sustainability For the 3 most attractive themes, scr

16、een for companies scoring 50 for Quality/Momentum and Sustainability1 Theme SelectionThe SDGs provide a straightforward startMeeting the SDG targets provides structural growth potentialThe 17 SDGs form a group of broader social and environmental targets that countries are required to achieve by 2030

17、.Some 169 sub-targets have been set in total.Investors seeking exposure to broader Impact themes increasingly use the UN SDGs as a framework for investingAnnual investments required to meet the sub-targets average cUS$7trn until 2030 according to the UNWe view the SDG targets as providing structural

18、 growth dynamics for exposed companies17 Sustainable Development Goals have been adopted: 169 key targets set for countries to achieve by 2030Annual Investment Requirements (US$bn) by key sector. We see the SDG as providing structural growing demand1 ThemeSelectionSelecting themes with SDG exposureW

19、e use themes to gain access to multiples SDGsWe have selected 11 themes with ImpactWe believe that these themes have direct and indirect exposure to a range of SDGsRelevant companies therefore can be connected to these SDGs tooWe expect to increase our range of Impact themes in the futureCredit Suis

20、se Impact Themes and relevance for SDGs1No Poverty2Zero Hunger3Good Health and Well-Being4Quality Education5Gender Equality6Clean Water and Sanitation7Affordable and Clean Energy8Decent Work and EconomicGrowth9Industry, Innovation andInfrastructure10Reduced Inequalities11Sustainable Cities and Commu

21、nities12Responsible Consumption andProduction13Climate Action14Life Below Water15Life on Land16Peace, Justice and StrongInstitutionsAgeingBuilding a Zero Carbon WorldCircular Economy - PlasticDiversityEducationFuture of Work - AutomationHealthy LivingInfrastructureRenewable EnergySustainable Transpo

22、rtWater2 StockSelectionSelecting stocks for each of our themes We engage with our analystsKey characteristics of our current stock universeBelow we list the current universe statistics for the stocks chosen at this point3 ESGFilterScreening for potential issuesCompanies we excludedWe analyse public

23、data sources to assess whether a companys historic behaviour is a reason for exclusion.To do this, we assess potential ESG red-flags and make a subjective judgement on whether they warrant exclusionWe only focus on events which occurred within the last 3 yearsExamples include: frequent auditor chang

24、es, ongoing governance issues or social improprietyGoing forward we will regularly track our existing portfolio to flag any events which may warrant exclusion from our universe8007006005004003002001000Universe of Companies Exposed to our ThemesUniverse Post-ESG Screen4 ThemerankingFinancial metrics

25、that matter in our viewQuality and Momentum are key for growth stocks We look for companies that haveHigh QualityHigh MomentumStrong Credit QualityA focus on innovation andHigh accounting quality4 ThemerankingWe rank our themes using 3 variablesWe use our Business Sustainability IndicatorWe dont use

26、 ESG metrics at this stageWe know the relevance of Quality and Momentum as parameters for structural growth stocks in generalWe add a new factor: Business Sustainable Risk. This aims to identify companies that have above-average resilience in their operations to suggest that they remain positively e

27、xposed to the selected themes and SDGsThe Business Sustainability Risk factor includes: Accounting risk, Balance sheet risk and Innovation riskInput for our Business Sustainability IndicatorBusiness Sustainability Risk ComponentWeightAdditional inputCredit Risk ScoreNet Debt / EBITDAR33%Weighted ave

28、rage score based on 5-year average for the variable (75%) and its co-efficient of varation (25%)Leverage at Market33%Weighted average score based on 5-year average for the variable (75%) and its co-efficient of varation (25%)HOLT Fixed Charge Ratio33%Weighted average score based on 5-year average fo

29、r the variable (75%) and its co-efficient of varation (25%)Innovation Risk ScoreCapitalised R&D + Intangibles / Sales25%Weighted average score based on 5-year average for the variable (75%) and its co-efficient of varation (25%)(Capitalised R&D + intangibles) / (Gross25%Weighted average score based

30、on 5-year average for the variable (75%) and its co-efficient of varation (25%)Investment + intangibles)Sales per employee25%Proxy for impact of technological change. 5year CAGR of sales/employee usedSales / Gross Investments25%CAGR over 5 year period to indicate directional improvement in overall e

31、fficiencyAccounting Quality ScoreRevenue Recognition25%Scoring based on multiplying materiality of the variable with the risk and trend of it- Accounts receivable75%Materiality: receivables/sales (5yr average). Risk: co-efficient of variation and current vs 5yr average- Deferred revenue25%Materialit

32、y: deferred revenue/sales (5yr average). Risk: co-efficient of variation and current vs 5yr averageCost Recognition25%Scoring based on multiplying materiality of the variable with the risk and trend of itDepreciationAccounts payableInventory33%33%33%Materiality: depreciation/gross cash flow (5yr ave

33、rage). Risk: co-efficient of variation and net plant/gross plant Materiality: Acc.pay/COGS (5yr average). Risk: co-efficient of variation and current vs 5yr averageMateriality: inventory/sales (5yr average). Risk: co-efficient of variation and current vs 5yr avg.In addition variation in gross margin

34、 also usedCash flow structure25%Scoring based on multiplying materiality of the variable with the risk and trend of itSpecial Items40%Materiality: special items/gross cash flow (5yr average). Risk: % of years with special itemsNet Income40%Materiality: net income/gross cash flow (5yr average). Risk:

35、 co-efficient of variation and current vs 5yr average.Also number of years with different trend in EPS vs CFROIStock Compensation20%Materiality: stock compensation/sales (5yr average). Risk: co-efficient of variation and current vs 5yr averageBalance sheet recognition25%Scoring based on multiplying

36、materiality of the variable with the risk and trend of it- Other liabilities50%Materiality: other liabilities/gross investment (5yr average). Risk: co-efficient of variation and current vs 5yr average- Intangibles50%Materiality: intangibles/assets (5yr average). Risk: co-efficient of variation and c

37、urrent vs 5yr average. Also amortization as % of cashflow vs 5yr averageSustainable Investment Strategies: Results so farPerformance to dateRanking themes on Quality, Momentum and Business ResilienceOur Sustainable Investment FrameworkOur investment approach towards sustainable themes uses Quality (

38、cash flow return credentials), Momentum (mainly analyst revision) and our proprietary Business Sustainability Indicator as factors to assess which themes are most attractive. Of the top 3 ranked themes we select those constituents that score above average on the same factors.During the past month th

39、e stocks selected from our top 3 ranked themes outperformed the MSCI AC World index by 34bps. Since launch in November last year this approach has yielded a total outperformance of 526bps.During the past 3 months most of our themes managed to outperform global equities. The themes with the strongest

40、 performance during the past month and since launch in November last year are Renewable Energy, Building a Zero Carbon World and Automation. Infrastructure, Water and Sustainable Transport have lagged our other themes since November, however, their more recent performance has been improved which we

41、find promising. Performance since launch early NovemberAbove avg Quality-Momentum and Susstocks in top three themesainability5.7%25.0%10.6%MSCI AC World5.4%19.7%5.1%Alpha of Strategy (bps)35439526Price performance1m3mSince inceptionAgeing2.8%22.1%1.1%Building a Zero Carbon World11.2%37.9%12.7%Circul

42、ar Economy - Plastic7.1%29.3%22.7%Diversity3.8%24.1%-1.4%Education7.5%19.0%11.8%Future of Work - Automation7.7%25.1%15.0%Healthy Living6.9%29.2%10.2%Infrastructure6.0%22.3%-1.1%Renewable Energy13.1%43.8%44.7%Sustainable Transport10.6%30.6%-2.0%Water8.2%21.9%-0.7%MSCI AC World5.6%19.7%5.1%Price perfo

43、rmance1m3mt Statistics by theme and overallSince InceptionNote: Blue font color denotes outperformance relative to MSCI AC WorldUpdated ranking of our themesChanges in Momentum scores drive overall rankingAverage of Q, M and S Top and bottom ranked themes unchangedBased on the most recent data we fi

44、nd that Automation and Ageing remain among the 3 best ranked themes. Education has dropped out of the top 3 and is replaced by Building a Zero Carbon World.Themes that still score lowest on Quality, Momentum and Business Sustainability are Renewable Energy, Sustainable Transport and Infrastructure.

45、Average Quality & Momentum change by theme Our themes on our thee metricsRanking our themesBusiness Sustainability ScoresThe variable does not change much Ranking on business sustainabilityOur business sustainability score assesses the relative ability of a company to incorporate change or transitio

46、n if needed. We use Credit Risk, Innovation focus and Accounting quality metrics to rank our themes.Automation and Ageing exposed companies have the most resilient business characteristics in our view.The bottom 2 ranked themes remain the same (Infrastructure and Renewable Energy).Building a Zero Ca

47、rbon World is the only theme that scores above 50 on all factors included in our ranking variables. Quality is highest in Ageing. We show the ranking of our themes for each of the 5 factors Our themes on each of the 3 Sustainable Risk factorsUpdated quantitative stock screen Best stocks in the top 3

48、 ranked themesFuture of Work - Automation and Ageing related stocksUpdated quantitative stock screen Best stocks in the top 3 ranked themesAgeing & Building a Zero Carbon World related stocksUpdated quantitative stock screen Best stocks in the top 3 ranked themesBuilding a Zero Carbon World (contd.)

49、A review of the renewable energy supply chainRenewable EnergyRelatively poor financials but strong share price performanceAs shown earlier the theme of Renewable Energy has the lowest ranking of our 11 sustainable investment themes when financial metrics such as Quality, Momentum and Business Sustai

50、nability are considered. Typically, renewable energy companies suffer most from cash flow returns that are low and below the cost of capital and from relatively low scores in terms of accounting quality, credit risk and innovative focus. Interestingly, momentum for renewable energy is strong which r

51、epresents a mix of analyst earnings revisions on 3month basis and 52-week share price change.In contrast to the themes relative financial performance, we note that share price performance has been anything but bottom quartile since November last year. In fact, the theme has outperformed all other th

52、emes since launch as well as during the past 3 months.In this quick overview, we aim to identify how widespread this performance has been and which companies or sub-sectorsmight look more attractive at this point. Performance for our themes since launch early November Returns by theme since November

53、 2019The renewable energy supply chainOur universe constituents are grouped into 7 sub-themesRenewable Energy Operators: This group consists of companies that have significant revenue exposure to generating and selling renewable energy. Included are utility companies with exposure to solar, wind and

54、 hydroelectricity as well as dedicated operators of wind and solar farms.Wind power manufacturers: This group consists of companies that produce wind energy generating equipment such as wind turbines.Solar power manufacturers: These companies manufacture solar power generating equipment and systems.

55、Hydrogen manufacturers: While typically small in size these companies are exposed to various part of the hydrogen- generation process such as fuel cells.Solar power installation companies: Companies included have a business of design, manufacturing, installation and operation of solar power generati

56、ng equipment, mostly with a retail focus.Renewable energy ancillary services: The operation of renewable energy requires support services that allow the running of renewable energy equipment. Companies included are cabling and measuring equipment manufacturers.Energy storage companies: The key chall

57、enge faced by renewable energy is the relative unpredictability of supply (e.g. solar does not work when its dark). Therefore energy storage is needed to balance supply between periods of low energy generation and those were a lot of energy is generated. We include companies exposed to the battery s

58、upply chain.Renewable Energy Supply Chain Performance varies very substantiallyGiven that a number of the companies included in our analysis have a small market capitalization we use a marketcap- weighted approach for calculating returns. Based on this we find that the dispersion of returns since we

59、 launched with our sustainable investing approach in November last year is very large.Best performing groups: since November last year are Hydrogen exposed companies with a 208% return, Solar power installation companies (+183%) and Solar power manufacturers (+90%). Using returns for the past 3 mont

60、hs we would highlight wind power manufacturers too given their quarterly return of 72%.Weakest share price returns since November last year were generated by the Renewable Energy ancillary providers (- 0.1%) and the Renewable Energy Operators (+12%). Interestingly though we note that both groups per