Alibaba climate tide can lift valuation boat

3 minute read

Alibaba Group CEO Daniel Zhang (Zhang Yong) speaks at the World Internet Conference (WIC) in Wuzhen, Zhejiang province, China, November 23, 2020. REUTERS/Aly Song

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HONG KONG, Dec 20 (Reuters Breakingviews) - Alibaba's (9988.HK) big climate splash could have ripple effects on its valuation. The Chinese e-commerce titan at its annual investor day on Friday unveiled bold carbon-neutrality goals for 2030 and beyond. Longer term, the efforts could bolster shareholder returns.

The company wheeled out top executives for the event including boss Daniel Zhang and outgoing finance chief Maggie Wu. But the latter, alongside her successor Toby Xu, failed to present a compelling financial case for Alibaba amid regulatory crackdowns, China's sputtering economy and intensifying competition.

A near-50% plunge this year leaves Alibaba’s stock trading at less than 15 times forecast 2022 adjusted earnings for its core e-commerce business, per JPMorgan estimates. That's well below rival JD.com's (9618.HK) 33 times, and trails American retailers like Walmart (WMT.N) and Target (TGT.N). The beat-up valuation implies shareholders ascribe zero worth to other units, including Alibaba’s international operations and a fast-growing cloud-computing division, which together constitute a fifth of annual revenue.

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That makes Zhang's big climate reveal even more conspicuous. Besides a lone environmental, social and governance report in 2018 and a half-hearted attempt read more to make this year's Singles' Day shopping festival greener, the company has largely stayed on the sustainability sidelines.

Its latest pledge, though, sets a high standard for global peers. By 2030, Alibaba wants to achieve carbon neutrality in its own operations and energy use, known as Scope 1 and Scope 2 emissions. Last year, these totalled 4.2 million tons, mostly due to electricity-hungry data centres.

Moreover, the company is pushing an ambitious programme to reduce greenhouse gases that do not fall into Scopes 1, 2 and even 3, which includes supply chains, investments and other indirect sources. These Scope 3+ emissions, as Alibaba dubs them, belong to the millions of consumers and merchants that use the e-commerce giant as a middleman.

Zhang wants to reduce 1.5 gigatons of these by 2035 by focusing on encouraging greener consumer and corporate habits, like buying eco-friendly products and using less packaging. It's a laudable attempt that companies like Amazon.com can emulate.

Besides scoring much-needed political points, Alibaba's green pivot may even give its valuation a boost over time. A recent study analysing over 1,000 companies over a five-year period found positive correlations between ESG know-how and a firm's financial and stock performance. Getting the details of Alibaba’s climate push right will be key, but so far it seems to check the right boxes.

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CONTEXT NEWS

- Chinese e-commerce company Alibaba on Dec. 17 announced a pledge to achieve carbon neutrality in its own operations by 2030. As part of the plan, the company will also target a 50% carbon intensity reduction for so-called Scope 3, or emissions indirectly generated by Alibaba, from 2020 levels. In addition, Alibaba has developed the concept of Scope 3+, which it defines as “emissions generated by a wider range of participants in a platform’s ecosystem, currently outside of the Scopes 1, 2 and 3.” It aims to cut a total of 1.5 billion tons of Scope 3+ carbon emissions by 2035.

- Alibaba held its annual investor day virtually on Dec. 16 and 17.

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Editing by Antony Currie and Katrina Hamlin

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Robyn Mak joined Reuters Breakingviews in 2013. Previously, she was a Research Associate for the Global Policy Programs at the Asia Society in New York where she focused on US-Iran relations, US-Myanmar relations and sustainability issues in Asia. She has also worked as a researcher at the Carnegie Endowment for International Peace in Washington DC and interned at several consulting firms, including the Albright Stonebridge Group. She holds a masters degree in international economics and international relations from the Johns Hopkins School of Advanced International Studies and is a magna cum laude graduate of New York University.