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ESG Exposed

4 March 2022

Recent weeks have brought into sharp focus the damage that overly aggressive ESG (Environmental, Social and Governance) investing can wreak. In short, however wonderful the thought of totally clean energy and a world without the need for military defence might be, both belie reality, at least for the foreseeable future. The goal of carbon free energy is terrific but we need to get there without leaving ourselves at the mercy of tyrants such as Putin. Similarly, military underinvestment by many NATO nations leaves the whole world vulnerable but at least the current wake-up call has provoked some of them, particularly Germany, to do something about it.

The problem is that even though governments may now bite the bullet on both these problems it still requires businesses to find and produce the oil and gas necessary (the latter at least being a much cleaner alternative to coal) and develop/manufacture the military hardware and systems that are needed. These businesses need access to capital but aggressive ESG investment risks undermining both. This has been most notable with the withdrawal of major companies from further exploitation of North Sea resources, due to ESG pressure, at the worst possible time. We are getting a very sharp wake-up call – is anybody listening?

Market Update

The world is suddenly a very different place to the one we lived in just a few weeks ago. Mad Vlad has shown us just how mad he really is and the poor Ukrainians are paying the price in human terms whilst world stock markets are paying the price in financial terms. At this point who knows what the outcome will be apart from the fact that the acceptance of natural resources and anything else from Russia should become a thing of the past whilst Putin remains in place. The main worry for markets is an escalation when almost anything that NATO does from a military standpoint is likely to be interpreted as aggression by Putin. He (so far) correctly anticipated that the West would not confront him unless he strays beyond the NATO boundaries. One wonders if that would have been the case with the former resident of the White House?

On the back of two years of Covid disruption and the rebirth of inflation did the world really need a major conflict added to the mix? It did not. We are likely to see downward pressure on markets whilst this continues, with short sharp rallies whenever a little hope beckons. There is a price for everything and the UK market starts from a position of comparative cheapness versus other major markets so its downside may be more limited than others. We are, however, in for a choppy few weeks at least.

Clipper Logistics – Update

Neil’s tip of the year has performed its Peacock dance rather early and attracted the eye of a US suitor in GXO. The offer which is made up of cash and stock equates to 920p, 690p in cash and 230p in new GXO shares. The offer is recommended by the Clipper board to its shareholders and, with top management owning c. 23% of the business it will likely go through rather quickly although there may still be scope for a counter with the shares sitting at 880p (tipped at 724p).

It’s good to get an early win under one’s belt but this further highlights our arguments that UK Plc is far too cheap.

Belluscura – Update

Stuart’s nap for the year produced an excellent set of finals at the tail-end of last month. Although still loss-making at present, break-even looks much closer. FDA approval was only granted a year ago for its portable oxygen concentrator and already ten distributors have been signed up across the US and regulatory approval is also being sought in Europe and the Middle and Far East. In the period to end December 2021 unit sales of the X-PLOR model were 25% ahead of consensus forecasts and 150% ahead of initial forecasts. The even lighter next generation model X-PLOR CX is due to launch in the coming months with the X-PLOR DX following in the third quarter.

Tipped at 118p, the shares have suffered in the market set-back of last few days and are currently 95p. A high risk AIM stock remember, but the potential for these products is huge.

Russell Dobbs FCSI

Chartered Wealth Manager