US Powerplant Regulations, Thematic Earnings, And Other ESG News This Week

FactSet StreetAccount publishes regular company-level and summary-style ESG news. Below is our recap of key ESG developments and insights over the past week.

Chart of the Week - Thematic Earnings Reports

Figure 1 shows some of the notable thematic company earnings results from the past week. On balance, earnings have been stronger led by solar (following last week's disappointments) and energy storage (growing backlogs related to IRA demand). Revenues have been somewhat more challenged across themes, and macro pressures have been cited, especially amongst EV producers. Hydrogen companies continue to struggle with costs and funding, bringing many companies to 52-week share price lows.

Figure 1: Week-to-date returns for notable thematic companies reporting earnings

Source: FactSet StreetAccount

Thematic Performance

Thematic sectors trading higher on the week, outperforming broader markets, led by US transition materials, energy storage, and EVs. Lithium miners higher across US and APAC on merger between Allkem and Livent Corp which will create the world's third largest lithium producer with a value of $10.6B and will focus on building a supply chain in the Americas.

US battery makers outperforming on Fluence Energy after company reported narrower Q2 losses than expected and raised FY revenue guidance. SES AI, ESS Tech, and Eos Energy also higher on earnings. Li-Cycle seeing modest gains after announcing plans with Glencore to develop an European battery recycling hub. EVs mixed on the week though sector bolstered by strong earnings from US and Chinese reports; Rivian saw narrower losses than expected and Li Auto also beat expectations for the quarter. Premium EV maker Lucid, however, missed and cut guidance, a move analysts see as a sign of weaker demand for luxury cars. Polestar and Fisker also cut production guidance. Analysts see the financial results a sign the EV industry is poised for an overhaul, similar to the early days of the auto industry.

Renewables seeing mixed performance across markets; N. American diversified names higher on NextEra Energy after it announced plans to become a renewables pureplay. US solar outperforming on Shoals after solid Q1 results. Comes as analysts express concern over mostly negative solar earnings this quarter. Chinese PV makers lagging despite country seeing robust Q1 growth in installations and exports. Hydrogen continued to extend its YTD losses; Plug Power, Bloom Energy, and NKLA all saw declines this week.

Environment

In the US, the EPA released proposed power generation pollution standards Thursday, May-11, following last year's SCOTUS ruling on West Virginia case that set back agencies' ability to broadly regulate the sector. Coal plants in operation in 2040 would have to capture 90% of CO2 by 2030, with large natural gas powerplants doing the same by 2035 or moving completely to hydrogen combustion by 2038. The policy does not specifically mandate use of carbon capture technology but rather sets maximum pollution rates they could meet through changing fuels or using different technology and is estimated to avoid over 600M metric tons of carbon dioxide emissions by 2042.

The European Parliamentvoted on Tuesday in favor of rules forcing oil and gas companies operating in Europe to cut methane emissions; an attempt by center-right EU lawmakers to weaken the law failed to win majority support.

Ahead of COP28, anticipating resistance to an agreement on a rapid reduction of emissions (incoming COP28 President clashed with environmental ministers on curbing emissions while continuing fossil fuel use), European diplomats shift focus to a global target for rolling out renewables. Comes as the IEA sees large potential for emissions intensity gains for oil and gas producers.

Social & Governance

The US government is investigating Rockwell Automation and whether it is exposing US infrastructure, military, and other government assets to potential cyber threats through one of its China-based facilities. An EU decision clearing the $69B Microsoft-Activision is reportedly expected 15-May, according to inside sources. Comes after UK regulators blocked the purchase last month. Apple is under investigation by Italy's antitrust watchdog over allegations it is abusing its dominance in the app market.

Safeguards over the use of AI continues to spark debate, as Members of the European Parliament voted May 11 to include banning the use of AI facial recognition in public spaces and predictive policing tools in the anticipated AI Act. Spotify removed thousands of AI-made songs to tackle fake streams.

Shareholders continue to pressure for corporate action on climate and diversity to mixed result. Volkswagen published its first review of climate lobbying following investor pressure. European investors urged Toyota to improve disclosure of climate change lobbying. ISS advised Shell shareholders to vote against climate activist resolution, and Berkshire Hathaway shareholders rejected climate and diversity proposals.

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