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Written by: Laura Hoy | Hargreaves Lansdown
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BATs will continue to turn the tanker as it pivots toward new categories.
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Rio Tinto’s copper mine woes underscore the need for more water-saving technology.
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Will Shell put rumours about a potential sale of its renewables business to bed?
Some sin stocks are set to report next week, so their ESG credentials will be on full display. Chevron’s shrugged off any climate-related concerns thanks to the blase attitude of its US investors, but Shell’s under the microscope as investors question whether it will offload all or part of its renewables division. Meanwhile, Rio Tinto’s disputed US copper mine shines a light on the need for more investment in water-saving technology and British American Tobacco continues its quest to pivot its operations to so-called healthier alternatives.
Here's a look at the responsible investment stories to watch when these sin stocks report next week.
Tobacco
British American Tobacco, Half Year Results, Wednesday 26 July
With traditional smoking on the decline, British American Tobacco is aiming to swap its customers on to next generation products like heated tobacco and vaping. But there are plenty of potential pitfalls to manage - primarily, whether this shift is actually a healthy one. There are also concerns that flavoured vape pens attract underage uses, which has seen some of BATs markets ban them. This is a hurdle that BATs will have to navigate carefully as it pins the future of its business on these new categories. For now, traditional cigarettes still underpin BATs business, with new categories making up only 10% of overall revenue last year and bringing overall operating profit down by £366m. Not only will investors be looking for the proportion of revenue derived from new categories to be on the rise, but also a path to profitability. Ultimately, this is only a viable strategy if the group can make the division profitable at scale.
Mining
Rio Tinto, Half Year Results, Wednesday 26 July
Miners like Rio are in a unique position when it comes to responsible investing. On one hand they’ll be pushed hard to supply the world with the necessary metals needed to support the energy transition. But responsible investors will also be pushing them to do it with as little impact - both socially and environmentally - as possible. Rio’s currently walking this tightrope in the US, where it plans to build a copper mine that’s been opposed on the basis of both cultural and environmental concerns. The site lies in the desert of Arizona, so water use is a huge part of the opposition. It underscores the pressing need for Rio to up the ante when it comes to investing in water conservation. Given that expanding its portfolio into growth areas like copper is a key part of Rio’s strategy, investors will be looking for an update on where the group stands with this project and how it will balance all stakeholder needs.
Oil and Gas
Shell, Half Year Results, Thursday 27 July
Following Shell’s decision to walk back its climate pledges earlier this year, Shell will be under the microscope when it reports. On top of the ongoing legal action alleging that management aren’t adequately managing climate risks to the business, Shell’s also at the centre of a rumour suggesting it’s shopping its renewables business around for potential buyers. From a responsible investment perspective, this strategy could be a net positive for climate change depending on who comes on board. An investor with more expertise in the area could drive the renewables business forward. Plus, given Shell’s increased focus on legacy oil and gas, a complete spin-off could attract more capital from sustainable investors. Without more details it’s impossible to understand the implications, so we’re hoping Shell’s management will put these rumours to bed next week.
Chevron, Q2 Results, Friday 28 July
Chevron’s approach to net zero isn’t ideal given the group is unwilling to set an absolute reduction target. But its position in the US where many investors are nonplussed about climate change means it’s been able to coast when it comes to preparing for the energy transition. For now, it seems Chevron is simply going through the motions - it’s committed to investing $8bn in lower carbon activities through 2028. But to put that into perspective, it recently boosted its oil and gas reserves acquiring PDC Energy for $6.5bn. Carbon reduction appears to fall firmly toward the bottom of Chevron’s list of priorities, and unless management make a sweeping change it’s unlikely to make responsible investors’ list of best-in-class oil and gas investments.