Investing in Oil and Gas Companies Now Tagged as "Green Investments" in Europe
Environment and climate are important to European fund managers, but profit is more important. Therefore, the managers of environmental, social, and governance funds (ESG funds) are beginning to allocate a greater proportion of their assets to oil and gas producers. The data indicates that ESG fund managers are compelled to invest in fossil fuels because the industry has become so lucrative recently. According to Oilprice.com, this pattern was inconceivable just two years ago.
There is a growing sentiment among ESG managers and investors that oil and gas businesses are not unsuitable for their environmental, social, and governance (ESG) portfolios and standards. These oil and gas giants will play a significant role in the transition to green energy. Consequently, fossil fuel businesses are no longer viewed as untouchable.
According to a report by Zerohedge, European ESG equity funds have increased their stakes in energy companies. According to a recent Bank of America analysis, 6% of 1,200 European ESG active and passive funds now own shares of the multinational corporation Shell.
This proportion was zero at the end of 2021. According to BofA data cited by FT, European ESG-focused funds have expanded their interests in other European energy businesses, including Repsol, Galp, Neste, and Aker BP.
Investors will continue to demand transparency and a reduction in greenhouse gas emissions; hence, the ESG movement is here to stay.
However, they may accept that the energy transition will take decades and that "Big Oil" is making efforts in this respect.
Mark Lacey, lead manager of Schroders’ ISF Global Energy and Energy Transition strategies, said: "Sentiment is moving in favour of energy companies, even among investors that thought they would never want to be involved in the sector.”
Energy has been the best performing sector of the S&P 500 index so far this year due to the high oil and gas prices resulting from the Russian invasion of Ukraine and rising concerns around energy security.
According to market data compiled by Yardeni Research, energy is not only the most successful industry so far this year but also the only one.
Up to July 18, the energy sector of the S&P 500 had climbed by 26.5 per cent. Since January, the S&P 500 has decreased by 19.6 per cent, and all other sectors have also witnessed drops.
This extreme tendency among western investors toward oil and gas companies is a realisation that the green agenda may face significant setbacks. Frans Timmermans, vice-president of the European Commission, has already warned that a rapid transition to fossil fuels is required to prevent severe societal unrest.
He said, “If we were just to say no more coal right now, we wouldn’t be very convincing in some of our member states and we would contribute to tensions within our society getting even higher.”
Consequently, a transition, albeit temporary, towards fossil fuels appears imminent. And for European governments that choose their security over climate ambitions, oil and gas will reclaim their position as the leading energy sources.
Source: TFI Global News