ITM Power - Portfolio Addition

ITM Power (ITM.L) manufactures integrated hydrogen energy solutions which enhance the use of renewable energy that might otherwise be wasted. The company, founded in 2001 is based in Sheffield and floated on AIM in 2004. It has offices in Australia, Germany, France, USA and Canada.

These green energy solutions are increasingly in demand from large global companies who are keen to reduce their carbon footprint and demonstrate their commitment to the environment. ITM's solutions have many applications such as grid balancing, energy storage, and the production of green hydrogen for use in many areas of transport - buses, cars, trains, ships and planes - to replace conventional petrol/diesel, and also for renewable heat.

The electrolysis of water involves the use of renewable electrical energy, for example from a wind turbine, to separate water - H2O - into hydrogen and oxygen. The hydrogen is then used as a fuel - for example for use in transport - to replace fossil fuels or nuclear energy. Carbon dioxide emissions are reduced to almost zero. The emissions from the use of hydrogen is just water as it recombines with oxygen when used.

Furthermore, hydrogen could be used as an alternative to natural gas to heat our homes in the future. Traditional gas boilers will be banned for all new-build homes from 2025. This could be relatively inexpensive as the existing natural gas infrastructure could be used to carry the hydrogen gas instead.

The company has collaborated with Shell Energy for hydrogen refueling at their forecourts and also signed a partnership agreement with Sumitomo for multi-megawatt projects in Japan. They have recently entered into joint venture with Orsted to combine renewable wind power with green zero-carbon hydrogen which is key to decarbonising the global energy systems.

Climate Change Minister Lord Duncan said:   

"Using the power of hydrogen could help cut emissions, create jobs and make industrial processes cleaner and greener, benefitting the whole economy as we work towards net zero by 2050.   

This innovative project from Ørsted and ITM Power will help our efforts to roll out hydrogen at scale by the 2030s - a crucial step towards the end of the UK's contribution to global warming."

This is a fairly small company with a market cap. of £120m and I therefore expect the share price to be a little volatile however, the market for green energy solutions is likely to grow at a rapid pace as more developed nations follow the lead of the UK and legislate for net zero emissions by 2050.

3 Yr Share Price

I think this company could really take off in the coming few years and have therefore added the shares to my 'green' portfolio at the purchase price of 37p. The company is due to report full year results in the very near future.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies can be rewarding but is higher risk - always DYOR!

Scottish Mortgage Trust - Portfolio Sale

This global investment trust was added to my SIPP portfolio at the start of 2017 at the initial purchase price of 338p. A year later, following a little turbulence in the share price, I added SMT to my ISA portfolio at 415p. 

In May they issued full year results and, in my write-up, I flagged up some concern that Elon Musk's SpaceX had been added to the portfolio. For someone who is concerned about the environment, this was a red light. I subsequently established that this space exploration company was also held in my other BG holding Edinburgh Worldwide and also their recently launched American Fund.

I wrote to Baillie Gifford to express my concerns and from their lengthy response (which I won't bore you with), I concluded that BG were excited about all the potential offered by their holdings and I suspect they will be increasing this across various trusts and funds in their stable.

The Problem for Me

As I understand it, the ultimate goal of companies such as SpaceX is to revolutionise space exploration and enable humans to live on other planets such as Mars. In a bizarre article in the Independent this week, Musk said he wanted to "Nuke Mars" as part of a plan to make the planet habitable with a view to establishing a city and colonising Mars by 2050. Musk suggests that colonising the red planet is essential for our survival.

Musk launches Tesla into space

Of course, Musk is not the only rich entrepreneur engaged in these fantasies. Amazon CEO, Jeff Bezos has Blue Origin which is looking to make space travel more feasible. Our own Richard Branson has recently announced plans to float his Virgin Galactic on the New York stock exchange and be the first business to provide commercial space travel.

You don't need a degree in rocket science to understand the environmental impact of all the emissions generated from these activities. Thousands of test rockets are injecting harmful emissions high into our upper atmosphere which is adding to warming and also depleting the ozone layer over the polar regions.

Jeff Bezos and Blue Origin

I guess a lot of people think it's 'cool' for these billionaire entrepreneurs to try to outdo each other in the race for space dominance. Personally, I think it's just plain stupid and the height of human folly when so much effort is required to prevent global warming and when so many young people are doing everything to address our climate emergency.

These people are spending billions of dollars on finding solutions to living on another planet. I prefer to find solutions to continuing to live on this planet.

To Conclude

So, time to say goodbye to one of my largest global managed trusts.

The sale price was 542p which represents a rise of 17% year to-date. I have had a good run with SMT over the past few years - a total return of 65% on my SIPP investment and 32% for my ISA. I am sorry to have to give it up as my intention would normally be to hold for the longer term. However, for me, profit is not the only consideration and I like to think my investments are making a positive contribution to the world. 

Therefore I just do not feel at all comfortable holding a fund which has SpaceX and possibly similar holdings and certainly do not want to profit from organisations which trash the environment and pollute space with junk just like we fill our oceans with single-use plastics. As they say on Dragon's Den..."I'm Out".

The proceeds will remain in cash for the time being whilst I think about where to reinvest the money and explore other options.

As ever, this article is merely a record of my personal investment decision to sell and should not be regarded as a recommendation - always DYOR!

Legal & General Revisited

L&G is a large FTSE 100 company with a market cap of £14bn employing over 8,000 people serving 10 million customers. It is the UK's largest life insurer and has assets under management of over £1 trillion.

The shares were first acquired for my income portfolio back in 2014 and held for several years until a change of strategy prompted a sale in 2017. 

However, I tend to keep tabs on various investments held over the years and I have decided to embrace the shares once more as I wish to support companies that are making a positive contribution on the climate front especially those on the same page as myself in relation to coal and oil stocks.

Climate Divesting

In 2016, the company introduced its Climate Impact Pledge including a commitment to engage with the world's largest companies in six sectors which are key to meeting climate change goals in accordance with the Paris Agreement. These are oil & gas, mining, electric utilities, autos, food retail and financial.

The company's investment management arm, LGIM takes its responsibilities towards sustainable strategy very seriously and will frequently push the boards of the large multinationals to comply with obligations under the Paris Agreement.

However, when these companies fail to respond in a positive way, action has to be taken and LGIM are now starting to adopt a more aggressive response by divesting away from these companies.

Head of commodities research, Nick Stansbury has developed a model to rank the companies most at risk from the climate emergency. He has deep misgivings about the future of oil and says “Uncertainty around the level of demand growth creates massive instability in the way oil markets work, and that has all sorts of implications for investors"

LGIM started to divest some oil stocks in 2018 and have continued to drop some of the larger players in recent months. As an example, in June LGIM announced it had sold off $300 million of shares in Exxon Mobil and use its remaining holding to vote against the reappointment of CEO Darren Woods. LGIM is one of Exxon's top 20 shareholders.

This is the sort of action which is most likely to have influence in the boardrooms where big decisions are being taken so I want to support L&G in their endeavours.

Results

The other reason for taking another look at the shares is the recent share price weakness and increasingly attractive dividend. 

Last week the company announced interim results showing profits up 11% to £1bn and half-year dividend up 7% to 4.93p which puts the shares on a fwd yield of 7% at my current purchase price of 240p.

The company are working towards a low carbon future and head of Sustainability and Responsibility Strategy, Omi Meryam has recently set out a comprehensive action plan and says "Climate change carries significant financial risks, so protecting the planet and protecting our clients’ investments go hand-in-hand".

Conclusion

I decided to give up on holding individual shares some time back as I moved toward the globally diverse index funds such as Vanguard Lifestrategy. However, as I now look more closely at the environmental and climate-related aspects of these large index funds, I am becoming more circumspect. I do not expect to be adding many more single company shares but, at the same time, do not have a hard and fast rule about not holding them and remain open to opportunities when the circumstances appear attractive.

One Year Performance v FTSE All Share Index
(click to enlarge)

L&G is the UK's largest defined contribution pension manager following the introduction of auto enrolment and serves 3.4 million workplace customers. The share price was approaching 300p not so long back so I believe they offer the potential for significant capital appreciation, maybe after Brexit is resolved, and in the meantime I can sit back and gather a nice 7% dividend income tax free in my ISA.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Orsted - Half-Year Results

This energy company based in Denmark is a global leader in offshore wind with around 30% of global capacity and operations in Denmark, UK, Germany and Holland. It also operates several wind farms outside of Europe in the US and also Taiwan. The company's vision is to see a world run entirely on renewable energy.

The shares were added to my portfolio in April at 495 DKK and have advanced nicely over the past few months to 630 DKK. They also now feature in some of my other holdings - Mid Wynd Trust and Baillie Gifford Positive Change.

Renewable energy is very much in the ascendancy due to concerns about our climate emergency. It is estimated the global wind energy sector will attract investment of $1 trillion over the next 10 years as the world makes the transition from fossil fuels to low-carbon clean energy.

Results

The company has today announced half year results to June 2019. Operating profits increased to DKK 8.8bn (2018 8.5bn) and expectations for the full year are well on track.

CEO and President Henrik Poulsen says:
"2019 has been a very good year for Ørsted so far. Operating profit for the first half of the year amounted to DKK 8.8 billion, which was in line with our expectations and keeps us well on track to deliver on our full-year guidance of DKK 15.5-16.5 billion.  

We were selected as preferred bidder in the auctions in both New Jersey with our Ocean Wind project (1.1GW) and New York with the Sunrise Wind project (880MW) which we own in a JV with Eversource. Subject to final investment decisions, the wind farms are expected to be completed by 2024. We are very pleased with these awards and are well on track to reach our ambition of 15GW offshore wind capacity by 2025 as we continue to pioneer the global offshore wind industry.

In June, we officially inaugurated the Borkum Riffgrund 2 offshore wind farm in Germany and in July, we commissioned the Lockett onshore wind farm in the US well ahead of schedule.

In June, we acquired the 103MW construction-ready onshore wind project Willow Creek in South Dakota in the US. The project is expected to be commissioned by Q4 2020 and will expand our operations in the Southwest Power Pool market, covering the central US".

The share price has increased by 27% since purchase to DKK 630 and this is the second largest holding in my 'green' portfolio.

The shares yield around 1.7% based on the current price.

Share Price past 6 months

Green Transition

In the North Sea, 131 turbines have been installed and Hornsea 1 is due to be completed later this year and will become the world's largest offshore wind farm with a capacity of 1,218MW. Work has started on Hornsea 2 which is due for completion in 2022.

The company is on track to be carbon-free by 2025 and have plans for the sale of the remaining gas and fossil-based power operations which make up around 18% of the business. They have announced plans to phase out their company fleet of petrol/diesel cars and replace them will fully electric by 2025. The company has a strong commitment to the Paris Agreement and the UN Sustainable Development Goals.

The company has set ambitious targets to reduce greenhouse gas emissions in their supply chain by 50% by 2032.

So, although there are the inevitable currency considerations and the higher risks associated with single share ownership, I am happy with progress so far but it's early days.

The company is awaiting the outcome of various tenders on new projects in the US, Taiwan and Europe and news should unfold later this year. So, fingers crossed.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

iShares MSCI World ESG Enhanced ETF

I have been on the look out for a more globally diverse, ethically orientated fund for a little while and recently found this new ETF from iShares launched in April (ticker EDMW).

It is basically a developed world index fund however the fund rules out companies involved in unethical businesses such as weapons, landmines and tobacco for example. It also excludes companies involved in coal production and oil sands. It also scores the remaining constituents according to environmental, social and governance criteria - ESG - and therefore companies which may be smaller but come out with a higher score will get a larger weighting in the overall portfolio.

For example, one of my individual shareholdings Orsted, a global leader in offshore wind gets a higher percentage weighting 0.14%, than much larger companies such as Mondalez or Kellogg for example. By comparison the weighting for this company with my Vanguard SRI is just 0.03%.

Here's a short extract from the MSCI website:

"In recent years ESG investing trends have been driven by more investors seeking not only social benefits but also managing financial risks and opportunities. In fact, a recent survey indicated that most asset owners surveyed see the management of financial risks as the key benefit of ESG. In addition, after the COP 21 conference in 2015, many investors came to realize that climate change is not only an environmental topic but also a financial risk that will very likely have a material impact on many companies’ profitability during the global transition toward a low carbon economy. An estimated $25 trillion invested in carbon-related infrastructure is thought to be at risk from this transition".

The MSCI range of indexes measure the carbon intensity of each index to assist investors who wish to take such matters into consideration. They measure the carbon intensity for each company in the index and this can then be used for portfolio weighting. The global average is 198.3 tons of CO2e per million $ of sales. With this ESG fund, the figure is 120.7.

Here is a comparison of weighting of the large oil companies with my Vanguard SRI Global which I covered back in February. I am not sure why some companies such as Shell are held in the Vanguard fund and not the other whilst BP is in the iShares fund but not Vanguard.

Ideally I am looking for a global index fund that excludes these big oil company shares as well as some of the other high carbon polluting industries such as airlines and meat production - a truely climate-friendly alternative. It would be even better if it was multi-asset fund including government and green bonds! But for now this may be as close as I am going to get other than the managed options.

I have been asking my broker AJ Bell to list this ETF for a while. They initially told me they could set something up if I had £85,000 to invest however, after getting iShares involved, I have now had confirmation that they will now agree to do this for ordinary investors to purchase...thanks but it really should not be so difficult for investors to hold ESG funds!

I now need to do a little more research and also assess whether right now is the best time to invest in more equities given the rise of the markets and the fall in sterling compared to the US dollar.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!