Environment and climate matter for fund managers in Europe, but profit matters more. So, managers of environmental, social, and governance funds (ESG funds) are starting to shift a larger portion of their assets to oil and gas producers. Data shows ESG fund managers can’t help investing in fossils since the sector has become super-lucrative lately. As per the Oilprice.com website, this trend was unimaginable just two years ago.
There is an increased sense of feeling among ESG managers and investors that oil and gas companies can’t be cast aside as unfit for their righteous environmental, social, and governance (ESG) criteria and portfolios. Such oil and gas majors will play a major role in the green energy transition. And that’s why fossil fuel companies are no longer considered untouchable.
As per a Zerohedge report, European-based ESG equity funds have been increasing their investments in energy companies. 6 percent of 1,200 European ESG active and passive funds now own shares of supermajor Shell, according to a recent Bank of America report. This percentage was 0 at the end of the year 2021. According to statistics from BofA quoted by FT, European ESG-focused funds have also modestly increased their stakes in other European energy companies like Repsol, Galp, Neste, and Aker BP.
Investors won’t stop demanding transparency and a decrease in greenhouse gas emissions, therefore the ESG movement is here to stay. However, they could start to acknowledge that the energy transition will take decades and that the “Big Bad Oil” is actually making some progress in this regard. Mark Lacey, lead manager of Schroders’ ISF Global Energy and Energy Transition strategies, told FT, “Sentiment is definitely moving in favor of energy companies, even among investors that thought they would never want to be involved in the sector.”
Energy has been the top performing sector in the S&P 500 index year to date because of the high oil and gas prices following the Russian invasion of Ukraine and mounting worries about energy security. According to market statistics gathered by Yardeni Research, energy is not only the biggest gainer but also the only industry to have gained so far this year. Up to July 18, the S&P 500’s energy sector had increased 26.5 percent. In contrast, the S&P 500 is down 19.6% since January, and all other sectors have also experienced declines.
This radical trend among the western investors towards oil and gas majors reflects the realization that the green agenda might experience serious delays. The vice-president of the European Commission Frans Timmermans has already warned that a short-term shift to fossil fuels is necessary to avert major civil 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.”
So, a shift, although temporary, towards fossil fuels looks imminent now. And for European governments that prefer their own stability above climate goals, oil and gas will again become the topmost source of energy.