Heavy Metal

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Hi there,

This week provided a stark reminder of the link between politics and financial markets. News that President Xi Jinping secured a third term as leader of China’s Communist Party sent markets roiling. The yuan hit its weakest level against the US dollar in more than 14 years, while Hong Kong's Hang Seng Index took its biggest plunge since the 2008 financial crisis.

In Europe, meanwhile, the appointment of Rishi Sunak as the UK’s new Prime Minister seemed to have been picked in an attempt to calm markets. Sunak, a former finance minister, inherits the formidable task of stabilizing the British economy following the resignation of Liz Truss, whose tax plan sent markets into a tailspin. While Britain’s FTSE 100 stock index continues to yo-yo (as markets do) and economic headwinds still provide plenty of reason for caution, CNBC notes that some analysts are “unwinding their gloomy prognosis for UK stocks.”

As the US midterms draw closer (12 more days!), Business Insider offers a glimpse at how these elections historically have impacted the stock market. The bottom line is to expect more volatility in the weeks ahead. In addition to elections, all eyes are on the Federal Reserve, which is expected to raise interest rates at next week’s meeting following in the footsteps of the European Central Bank’s decision this morning.

Investors have also been watching tech stocks this week, which took a tumble following disappointing earnings reports from Alphabet, Microsoft, and Meta. Analysts see signs of a slowdown in digital advertising and cloud computing, but the rising value of the US dollar was also a contributing factor to the weaker-than-expected earnings. (Here’s a refresher on how exchange rates impact multinational companies if you want to know more.)

Many experts agree that maintaining your focus on the long-term will keep the stress away through market ups and downs. And remember: just as exercising your vote helps shape the future you want to see, so do your investment choices. Whether you invest to support sustainability, advance social causes, or align with your faith or other values, your investments can make a difference.

News you can use

• Fast Company’s 144 Brands That Matter in 2022 spotlights companies leading on social action, sustainability, inclusivity, and fun. The list includes both startups and brands owned by publicly-traded companies, such as Alaska Airlines, Coursera, GoodRx, The North Face, Polestar, and Poshmark. Keep in mind that judges chose honorees based on brand perceptions; FWIW’s guide to researching ESG Stocks and Funds may also be a useful resource as you research potential investment decisions.
  
• If you are looking to scare your neighbors for 🎃, you might consider going as the latest UN climate change report. It says current climate pledges fall well short of the commitments needed and will lead to global warming of 2.1-2.9°C by the end of the century, way past the 1.5°C target limit. Scientists say this would be deadly and make a big difference in how habitable the planet is.
  
• Financial news website Investor’s Business Daily (IBD) has released a list of the 100 Best ESG Companies of 2022. The ranking takes into account environmental, social and governance (ESG) sustainability scores from Dow Jones Newswires and IBD’s technical and fundamental stock ratings. The top 5 slots went to Worthington Industries, J.B. Hunt Transport Services, Verisk Analytics, Texas Instruments, and Apple.

Raw materials for a green transition

The current price for a pound of copper is around $3.50. This represents a drop of over a dollar since February. While FWIW readers know we don’t talk about commodities prices often, many are confused by this drop as the orange-hued metal plays an important role in the infrastructure and products being built as countries, companies and consumers seek greener alternatives.

No matter what values you prioritize in investing, it is useful to know that the transition to clean energy technologies will require A LOT of copper. Take electric vehicles (EVs). Each contains nearly 200 pounds of copper, four times what’s in conventional cars. “The metal of electrification” is also crucial for renewable energy generation and infrastructure. As this chart from S&P Global shows, global demand for copper is expected to nearly double from 2021 to 2035, creating a “chasm between customer needs and mine and refinery output.”

But copper is just one of several metals and minerals that will be needed as we overhaul our energy system. The critical raw materials for the green transition include graphite, lithium, cobalt, nickel, chromium, zinc, molybdenum, indium, aluminum, etc. (Check out this great infographic from Visual Capitalist though it is not as comprehensive as Tom Lehrer’s “The Elements” song.)

The World Bank estimates over 3 billion tons of metals and minerals will be needed for the wind, solar and geothermal power, and energy storage it will take to limit global warming. Production of key minerals could increase by nearly 500% by 2050 to keep up with demand. By 2040, all of the lithium mined last year will only meet one month’s demand, even with the supply from recycled batteries, according to another estimate. And these estimated timelines may be quickened as the shift to alternative energy sources speeds up in response to the war in Ukraine and Europe’s winter energy worries.

Mining companies are working to bring new projects online, but this takes years and gaining permits to operate is not guaranteed. If supply does not keep up with demand, scarcity of these resources will jeopardize the entire green transition.

Sustainably mining the way to a greener future

Metals are a must for a greener future, but sourcing them often comes at a high environmental and human cost. That’s why there’s a need for companies to invent and adopt more sustainable ways, whether it may be tech investments like green hydrogen, renewable electricity, satellite monitoring, geothermal lithium extraction and inert anode technology, or mechanisms for more transparency, worker protections and development of local communities.

Mining is a notoriously gritty and dirty sector, and depending on your values you may choose to avoid it. But it is vital to many of the sustainable goals that drive many FWIW readers and the surge in demand expected for metals could be an opportunity for long-term investors. As a recent Barron’s article explained, the outlook for mining companies is good, and stocks in the sector are looking cheap right now as the economy gets roiled.

For those looking to dig deeper (he, he), Responsible Mining Foundation releases an annual report scoring 40 large companies in areas like working conditions, environmental responsibility, gender, business conduct etc. US-listed firms in the Top 5 for “Human Rights” or “Climate Change” were Teck Resources, Newmont, BHP, and AngloGold Ashanti. You can also use an ESG tool, like this one from Sustainalytics, to compare company risk ratings. There are also startups helping to revolutionize mining to watch, like KoBold Metals, and firms recycling batteries, like Li-Cycle Holdings.

Investing in metals directly

While commodities trading is not for most people, you can consider funds that focus on metal prices. Launched last week, the KraneShares Electrification Metals Strategy ETF (KMET) tracks the Bloomberg Electrification Metals Index which is composed of futures contracts on aluminum, copper, nickel, zinc, cobalt, and lithium. “We believe now is the time to invest in these electrification metals as demand is poised to accelerate into the energy transition,” said Luke Oliver, Head of Strategy at KraneShares. Another similar fund, the Invesco Electric Vehicle Metals Commodity Strategy No K-1 ETF (EVMT), launched in April.

Interested in learning more about other sectors where innovation and responding to climate change go hand in hand? Check out FWIW’s recently released Guide to Cleantech Investing: Sectors to Watch.

Before you go -

Still need to stock up on candy for trick-or-treaters? The Chocolate Scorecard can help you pick chocolate bars that are free of child labor, poverty, and deforestation (sadly, they all still include calories.)

** FWIW team members own shares of Alphabet and Microsoft.

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