japanja
Steering change: sustainable automotive credit

Steering change: sustainable automotive credit

18-07-2019 | インサイト

The automotive industry still relies heavily on old-school business models and dirty technology. That makes it a useful case study for illustrating how we integrate the United Nations Sustainable Development Goals (UN SDGs) into our credits investment process.

  • Evert Giesen
    Evert
    Giesen
    Credit analyst

Speed read

  • The automotive industry poses some challenges from an SDG perspective
  • This implies risk for the sector’s medium-term investment performance
  • Companies adopting clean technology could qualify for our SDG universe

Introduction

Careful screening and ongoing monitoring is needed to identify those credit assets in the global automotive sector that can boost not only the short-term financial performance of an investment portfolio, but also contribute to positive long-term outcomes for investors and society.

Most of the companies in the automotive sector are in good financial health, with decent profitability and strong balance sheets. From an SDG perspective, though, the sector presents some challenges.

The transport industry contributes to approximately one quarter of greenhouse gas emissions worldwide. The industry has also seen the fastest increase in emissions, triggering a strong response from regulators in key markets such as the EU and China, to curb fleet emissions and promote the adoption of low to zero-emissions passenger vehicles.

With the highly punitive nature of this emissions-busting regulation, these sustainability concerns have a direct bearing on the financial performance and business case of carmakers, or the so-called ‘original equipment manufacturers’ (OEMs).

Despite these concerns, the sector is by no means a no-go area for our credits team: a handful of original equipment manufacturers (OEMs) have taken convincing steps towards adopting new technology that would position them to meet SDG criteria, thus qualifying them for inclusion in our investable universe.

サステナビリティに関する最新の「インサイト」を読む
サステナビリティに関する最新の「インサイト」を読む
配信登録

Sustainability as a financial factor

The UN SDGs take the quest for sustainability to the next level by making integration tangible and measurable. Investors are becoming increasingly interested in investment products that contribute to the realization of these goals and which at the same time offer attractive returns.

The financial consequences – in the form of fines, compensation and potential license withdrawals – can be very material for companies that fail to act in accordance with the SDGs. Ignoring the SDGs could therefore ultimately affect every investor, reinforcing the relevance of SDG-linked investment strategies.

The Robeco Credits team manages these risks by applying our SDG screening methodology to create a universe of eligible securities. This is then followed by fundamental analysis to identify securities within this universe which are financially attractive, with the aim of optimizing the risk-return profile of the portfolio.

Risky business

The automotive sector performs poorly in the SDG screening framework. In particular, because of the emissions-heavy engineering embedded in their products, the OEMs score negatively on Sustainable Development Goal 11: Make cities inclusive, safe, resilient and sustainable. This negative score is also a red flag for the implied financial and business risks associated with polluting technology.

Ever-stricter country and regional regulations governing emissions, particularly of CO2 but also of other pollutants such as toxic particulates, have a direct bearing on financial performance. OEMs who fail to adapt their engineering to meet CO2 emissions standards face the prospect of business-crippling fines and censure.

Figure 1: Average CO2 compliance cost per vehicle (USD)

These standards seem especially onerous in the light of more stringent testing procedures aimed at reducing emissions under real-world driving conditions. The EU has the most stringent regulatory targets and implied penalties. Japan and China also have punitive measures in place, while US regulation seems to be relatively light by comparison.

Factoring in the assumed impact of emissions regulations in the EU, the US, Japan and China, the CDP estimates that the average compliance cost per vehicle could by 2021 be double the costs calculated for 2015 (see Figure 1). This could climb by a further 50% by 2025.

Not automatically excluded

Viewed in light of the SDG framework, the automotive industry has a negative starting point. The screening doesn’t end there, though, as we evaluate stocks at an individual-issuer level. And, indeed, a core of automotive-related credit securities, including some of the traditional OEMs, do meet the threshold requirements for inclusion in an eligible universe.

OEMs who demonstrate a clear shift towards new technology are potentially eligible for consideration in the next phase of the credit analysis. Rather than relying on abstract targets and ambitious plans for transformation that companies may have issued, our credit analysts look for tangible change.

In particular, OEMs are required to reach a defined threshold of electric vehicle sales as a proportion of total sales in order to qualify for consideration.

Figure 2: Comparison of global CO2 emissions for passenger cars

An electrifying challenge

The trade-off for the industry, then, is committing now to massive investment in new technology in order to avoid future fines and business-crippling censure. The related costs, which include the bill for R&D and for new factories, are substantial and inevitably will dilute margins.

Margins will be knocked further by the fact that electric vehicles are likely to be less profitable than traditional cars in the beginning, partly owing to scale of production being relatively small at first. At this early stage of development, the shift to new technology is mainly towards electric technology. Two or three traditional OEMs have already made considerable progress in this direction.

Conclusion

The costs for companies of not complying with the SDGs can be high. These costs could become an operational and financial burden with serious consequences for investors exposed to these companies’ credit assets. The application of our SDG screening process is a key first step in identifying such investment risks.

The automotive sector is a case in point. Its low SDG score is an important warning signal for investors – and for the industry: new emissions regulations soon to be in force carry high penalties for non-compliance.

OEMs can prepare for these requirements by committing to the necessary transformation costs. Though these costs are also onerous, they are necessary for the long-term viability of the industry. Companies with tangible evidence of having adopted new technology would meet the minimum criteria for being included in a universe of eligible credit stocks.

This ultimately could result in more OEMs becoming eligible – from an SDG perspective – for inclusion in an investment portfolio.

重要事項

当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。

ご契約に際しては、必要に応じ専門家にご相談の上、最終的なご判断はお客様ご自身でなさるようお願い致します。

運用を行う資産の評価額は、組入有価証券等の価格、金融市場の相場や金利等の変動、及び組入有価証券の発行体の財務状況による信用力等の影響を受けて変動します。また、外貨建資産に投資する場合は為替変動の影響も受けます。運用によって生じた損益は、全て投資家の皆様に帰属します。したがって投資元本や一定の運用成果が保証されているものではなく、投資元本を上回る損失を被ることがあります。弊社が行う金融商品取引業に係る手数料または報酬は、締結される契約の種類や契約資産額により異なるため、当資料において記載せず別途ご提示させて頂く場合があります。具体的な手数料または報酬の金額・計算方法につきましては弊社担当者へお問合せください。

当資料及び記載されている情報、商品に関する権利は弊社に帰属します。したがって、弊社の書面による同意なくしてその全部もしくは一部を複製またはその他の方法で配布することはご遠慮ください。

商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号

加入協会: 一般社団法人 日本投資顧問業協会

本記事に関連するテーマ: