European, U.S. ESG-Related Contracts Jump as Commodity, Hedge Funds Show Interest; More Gains Seen (5)

NEWS/ANALYSIS

By Mathew Carr

–EU carbon hits record above 60 euros a ton
–Physical uranium, California carbon and GEO rise
–Regulators looking at potential greenwashing, which may mean investors seek to avoid “middle men” funds and go direct

Aug. 27-29, 2021 — ESG-related contracts jumped last week as investors show interest in commodities that will benefit from the climate transition.

The increases came as regulators the SEC in the U.S. and BaFin in Germany said they were looking into allegations of potential greenwashing at Deutsche Bank’s DWS fund unit, according to reports by WSJ, Bloomberg and others. DWS said Aug. 26 the allegations were “unfounded.” See notes 4 and 4A.

The regulatory scrutiny might help drive investors to seek more direct control of exposures, boosting demand for physical or near-physical commodities.

European Union allowance futures rose to a record high Monday on ICE — of more than 60 euros a ton:

Last week:

Ingo Ramming, Commerzbank Managing Director – Head of Corporate & Investor Solutions said: “The market is ending on a high note just in time for the bank holiday weekend. After a couple of attempts during the last weeks, European carbon prices were able to mark a new high at EUR 59.95 per metric ton. Dec 21 EU allowances closed the week at EUR 59.90 per ton. From September, the weekly auction volume will drop by 3.67 million compared to February to July. This creates the risk of tightness in case of increased conventional generation, strategic hedging or investor demand.” See note 5.

Ramming told me directly it’s unclear whether German economic output might contract after the big increases in carbon, electricity and fuel prices — eg natural gas, … and see note 6.

And also see this – China’s carbon market appears to be languishing:

Still, there appear to be bulls in the EU.

Buying the dip all year,” said Malcolm Harris, Climate Strategy, Sustainability, ESG at Chevron …in an interesting Linked In discussion started by Berenberg’s Lawson Steele. See note 7.

As Hurricane Ida pushed into the Louisiana coast on Sunday, signaling the seriousness of global warming, more ESG-market gains could come in the next week: See Redshaw, note 8.

Stateside, uranium – U308 – has jumped to its highest in years, according to broker Evolution Markets. See this snip from its app.

Evolution Markets app snip

See this also on the Sprott Physical Uranium Trust, which I’m hearing is driving demand for physical uranium:

That fund is seen adding to demand because a new type of investor is buying into the commodities that are set to benefit from the energy transition, according to a person familiar with the situation.

“You do get a direct access to the market. You did not have that vehicle before. (Sprott is) actually buying physical. They receive the investment and go immediately and purchase pounds (of uranium) associated with that investment. So it’s pretty transparent as to what they are doing. That has definitely boosted interest in the market place — knowing that utilities are now having to compete with a program launched by a reputable firm,” the person said.

See also RBC view from last month — note 9.

PRESS RELEASE: TORONTO, ON – August 17, 2021 – Sprott Asset Management LP (“Sprott Asset Management”), a
subsidiary of Sprott Inc., on behalf of the Sprott Physical Uranium Trust (TSX: U.UN) (TSX: U.U) (the
“Trust”), a closed-ended trust created to invest and hold substantially all of its assets in physical uranium,
today announced that it has launched an at-the-market equity program (the “ATM Program”) to issue up
to US$300,000,000 of units of the Trust (“Units”) in Canada.
https://sprott.com/media/4197/sput-at-the-market-equity-press-release-08-17-2021.pdf

The U-308 contract has since jumped more than 10%, attracting a new breed of investor, according to the market participant with knowledge of the situation.

Even after this year’s gyrations, the commodity remains well below the level needed to incentivize new uranium production — the US$50 mark often used to be cited, but now US$60 is becoming more common, according to investingnews.com (see note 3).

California carbon futures are moving higher, too, following an auction last week where bidding was stronger, more aggressive, than usual, according to a different person familiar with the situation:

Evo app

See the results summary here:

https://ww2.arb.ca.gov/sites/default/files/2020-08/results_summary.pdf

The CME Global Emissions Offset benchmark contract is moving higher, too.

The GEO contract is designed to offer a price indicator for screened voluntary emissions market credits. They are eligible for compliance with the global Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).

(Updates chart on Monday and adds comments, notes, two tweets, context, to be sure elements)

NOTES

1.See context on commodity indexes: https://carrzee.org/2021/08/02/buyer-beware-commodity-indexes-lock-in-dire-climate-status-quo/

2. See context on EU carbon market: https://carrzee.org/2021/08/17/eu-seen-considering-changes-in-global-commodity-markets-before-tightening-its-carbon-program-analyst/

3. https://investingnews.com/daily/resource-investing/energy-investing/uranium-investing/u3o8-price-update/

4. https://carrzee.org/2021/08/11/unregulated-messy-esg-ratings-and-data-products-face-tighter-global-regulation-after-glasgow-talks/

4A. https://www.wsj.com/articles/the-regulators-are-coming-after-sustainable-investing-11629994233 for WSJ
https://uk.finance.yahoo.com/news/deutsche-bank-dws-rejects-allegations-073448292.html Bloomberg on Yahoo
https://www.internationalinvestment.net/news/4036346/dws-rejects-greenwashing-allegations-sec-bafin-launch-probes

5. https://www.linkedin.com/posts/ingo-ramming-4098b69_emissionstrading-euets-carbonmarkets-activity-6837076444477177856-jgY2

6.

7. https://www.linkedin.com/posts/lawson-steele-9474809_euets-carbon-octt-activity-6837078256471023616-P-lD

8.

9. https://www.nasdaq.com/articles/rbc-says-social-media-activity-is-boosting-uranium-prices-2021-07-09

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