Jul 31, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning readers! Today's Smart Brevity count: 1,267 words, < 5 minutes.

🍽 Reminder: It has been a while since I mentioned that World Central Kitchen is working to feed vulnerable people and help the badly distressed restaurant sector at the same time. You can donate here.

🎸And happy birthday (a day early) to the great blues guitarist and songwriter Robert Cray, who has today's intro tune...

1 big thing: A regulatory battle for our times

Illustration: Sarah Grillo/Axios

It's hardly the biggest regulatory fight of the Trump era, but there's an important battle raging over plans to restrict sustainable investing that also distills the energy and climate politics of the moment.

Driving the news: The Labor Department is planning to limit private retirement plan managers' leeway to invest based on ESG — environmental, social and governance — factors.

  • The comment period on the draft regulation ended yesterday. It requires administrators to make investments "based solely on pecuniary factors" and limits the ability to fit ESG under that umbrella.

Why it matters: Raise your heat shields because here's my hot take...

1. It potentially tees up a battle in the next Congress.

  • There's opposition among Democratic lawmakers, including Sen. Elizabeth Warren, who is influential on financial policy, and the chairman of the House Education and Labor Committee.
  • That's important because regulations finalized very late in a presidential administration can be overturned using something called the Congressional Review Act, and resolutions under the act are immune from Senate filibusters.
  • If Democrats control Congress and the White House next year, other energy- and environment-related rules finalized in the waning months of Trump's presidency could face CRA fights.

2. It's the latest example of how Trump administration policies, like bailing on the Paris Agreement, at times go beyond what even some powerful K Street players want.

  • Consider that the powerful American Bankers Association, in new comments, calls the plan "unnecessary," says it's a potential burden, and proposes it be scrapped.
  • Asset management behemoth BlackRock, which recently increased its focus on sustainability, expressed concerns in new comments and urged more Labor-industry discussion, saying it “creates an overly prescriptive and burdensome standard that would interfere with plan fiduciaries’ ability and willingness to consider financially material ESG factors."
  • Meanwhile, the U.S. Chamber of Commerce's comments support the idea of rulemaking on ESG, but warns that the plan as written could have "unintended consequences" and urges a bunch of changes.
  • And, it does have some backing from conservative interests like the Competitive Enterprise Institute, signaling the fault lines between the right's activists and corporate interests on some topics.

3. The Labor Department is not typically seen as a climate policy battleground, but this tussle shows that policies across the government can be climate-related.

  • Comments filed yesterday by the sustainable investment group Ceres calls the plan based on "outdated" thinking about ESG.
  • Ceres argues that considering ESG factors can help avoid risky investment in companies most vulnerable to global warming and policies that transition from fossil fuels.

The intrigue: Let's get back to the proposed investing rule, which Axios' Felix Salmon covered here.

  • Labor Secretary Eugene Scalia says there's evidence that "when investments are made to further a particular environmental or social cause, returns unsurprisingly suffer."
  • His WSJ opinion piece promoting the plan argues that it "reminds plan providers that it is unlawful to sacrifice returns, or accept additional risk, through investments intended to promote a social or political end."

Yes, but: Multiple experts say ESG funds are a good bet! A recent Morningstar analysis found that over half of ESG funds outperformed their conventional peers over the last decade.

What they're saying: Experts with the firm Seyfarth Shaw, writing in Bloomberg Law today, point out...

  • "BlackRock found that more than three-quarters of sustainable indexes did better than traditional indexes in market downturns from 2015–2018."
  • "In addition, several leading investment management companies have found ESG investments outperformed traditional investments in 2020."
2. Breaking: Exxon and Chevron post big losses

The two largest U.S.-based multinational oil-and-gas giants both announced billions of dollars in second-quarter losses Friday in results that show the pandemic's toll on the industry.

Driving the news: ExxonMobil, citing "global oversupply and COVID-related demand impacts," reported a $1.1 billion loss, compared to $3.1 billion in profits the same period last year.

  • It's Exxon's second consecutive quarterly loss and deeper than Q1's $610 million hit as the company pointed to lower prices, production and sales.
  • But Exxon said that its spending cuts helped cushion the blow. Its capital and exploration spending fell to $5.3 billion in Q2, compared to $8.1 billion in Q2 of 2019.

Meanwhile, Chevron reported a $8.3 billion dollar loss, compared to profits of $4.3 billion in the same period last year.

  • The tally includes write-downs associated with downward estimates of future commodity prices. The company is also taking a $2.6 billion impairment on its investments in Venezuela, where sanctions have upended its ability to operate there.
  • "Even stripping out the impairments, Chevron’s adjusted loss was $3 billion, more than twice the average analyst estimate in a Bloomberg survey and the deepest since at least 1989," Bloomberg notes.
  • Chevron is also reducing spending compared to pre-pandemic plans.

What's next: More headwinds, even though market conditions have improved somewhat.

  • "While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter 2020," Chevron said.
  • Both companies' stocks were falling in pre-market trading.
Bonus chart: Big Oil's market struggles
Data: Yahoo Finance; Chart: Andrew Witherspoon/Axios

The COVID-19 pandemic is creating unprecedented problems for the oil industry, but its market struggles predate the crisis — as seen in this chart comparing five giant publicly owned oil-and-gas companies to the S&P 500.

3. Obama makes energy news (sort of)

Former President Obama's eulogy for the late Rep. John Lewis called the Senate filibuster a "Jim Crow" relic and said it should be ended if that's necessary to secure voting rights.

Why it matters: The influential Obama's comment probably boosted the chances that Democrats, if they regain the Senate, will weaken or end rules that require a supermajority to move big bills.

  • While he was talking about voting reform, ending the filibuster would widen the political opening for climate and energy bills if Democrats end up controlling the White House and Congress.

Where it stands: Senate Minority Leader Chuck Schumer has not ruled out a change in filibuster rules, and this month Joe Biden slightly backed off from his longstanding support for the tool.

Go deeper:

4. Catch up fast: drilling, flooding, clean energy, scandal

Shale: "Denbury Resources Inc. became the latest debt-laden oil producer to seek bankruptcy protection in the aftermath of a pandemic-fueled plunge in crude prices." (Bloomberg)

Climate change: "By the end of the century, increased coastal flooding driven by swelling ocean levels will endanger more than 250 million people and nearly $13 trillion worth of coastal buildings and infrastructure, according to a new study led by researchers at the University of Melbourne." (MIT Technology Review)

Renewables: "Chevron announced it will build 500 megawatts of renewable energy plants to power some of its global facilities, in what amounts to a sizable scaling up of clean energy for an oil giant with comparatively few big investments in renewables to date." (Greentech Media)

Ohio scandal: "The Ohio House voted unanimously to remove Larry Householder as Ohio House Speaker, just minutes after a federal grand jury indicted Householder and four others in a $60 million racketeering conspiracy connected to last year's nuclear bailout bill." (WOSU Public Media)

5. A low-cost EV heads for America

Kandi Model K27. Image courtesy of Kandi America

It's cute, right? That's Kandi America's Model K27, a small EV from the U.S. subsidiary of China's Kandi Technologies Group that's slated to begin limited U.S. delivery late this year.

Why it matters: Cost! Kandi says the K27 starts at $12,999 once you include the $7,500 federal tax credit and has an estimated 100-mile range.

  • The company says it will be the lowest-cost EV in the U.S. market, and I'm not aware of anything cheaper (readers, please LMK if I'm wrong).
  • A larger model with a bigger battery and an estimated 188-mile range, called the K23, starts at $22,499 when the federal incentive is included.

The intrigue: Kandi Technologies' stock surged this week — up 350% at one point, per Business Insider — after the company announced the launch.

  • The share price has come back down but remains about twice the level it started at this week.

What's next: Kandi said this week that it's holding a virtual launch on Aug. 18 to open reservations for the cars, which will initially be available in the Dallas area.

Go deeper: America’s cheapest electric vehicles are coming courtesy of Chinese automaker Kandi (TechCrunch)

Ben GemanAmy Harder