The argument for excluding oil and gas presumably is anchored in the belief that we would be better off if excluded companies went bust tomorrow – nothing is gained by transferring ownership of existing stock to someone else.
This seems true for dangerous weapons manufacturers or tobacco stocks but shutting down Shell, BP etc. tomorrow, in the absence of a complete energy transition and without regard for a just social transition, would hardly be the act of a responsible investor.
The vociferous environmental lobby has, for years, focused their attention on energy producers. This well-meaning pressure has led to sustained cuts in capital investment on oil and gas production, a desirable outcome perhaps in isolation but one that has driven serious unintended consequences that are now becoming all-too apparent.
The re-opening of the global economy after Covid-19 has seen demand for energy surge as supply is capped – by myriad micro-factors and persistent under-investment. Compounding the challenges are low inventory levels, which, in Europe and elsewhere, never fully recovered from the drawdown caused by harsh weather last winter.
The upshot is sharply rising energy prices that are threatening wide swathes of the economy, that will reward oil producers, and which will hit the worse-off hardest. Supply-side pressure is hitting a fragile global economy that has not yet weaned itself off carbon-based energies in a manner that will inevitably slow economic activity.
Recently, with transport blockages etc. leading to closed forecourts, we have had a taste of a world without petrol. If even essential workers can’t do their jobs, then the climate challenge is far from being the most serious immediate problem we face. The list of unintended consequences of climate change are materialising in real time and they are not all weather related – the complexity of the problem continues to grow.
A more holistic approach is to target demand. To force individuals and companies to adapt to using carbon-free energy supplies. One means of delivering for asset managers and owners is to favour those companies that consume less of this world’s scarce resources; to reward company management teams that are pivoting in the desired direction. Myopically dealing with supply without addressing demand is a deeply flawed approach.
