When you get the statement for your ESG fund the next time, you should pay greater attention to the stocks that are in your portfolio. Word on the street is that after years of bashing the fossil fuel industry, some “environmentally responsible” focused fund managers are now warming around to it.
A recent analysis reveals that environmental, social, and governance (ESG) funds are shifting their money into the oil and gas industry, which is something that would have been unthinkable just a couple of years ago.
Because of the recent upheaval, the energy sector is the only sector that has increased its weighting in the S&P 500 index so far this year. This makes it a decision that is not just opportunistic but hypocritical to the core beliefs of ESG. However, I think that this could be a trojan horse.
The managers of environmental, social, and governance funds are beginning to reallocate a larger share of their assets to oil and gas companies, particularly in Europe. This trend is notably prevalent in Europe.
Observers of ESG are noticing that the entire sector is undergoing a sudden about-face as a result of the quick change.
Bank of America (BofA), for example, has recently published a research note in which it places large oil firms at the top of its ESG Meter, which is a ranking of equities that the bank considers to be among the best environmental performers.
The following multinational oil and gas corporations can be found in the top 10 on the BofA ESG Meter at the moment (listed in alphabetical order):
- Chevron
- ConocoPhillips
- Devon Energy
- ExxonMobil
- Halliburton (oil field services)
- The companies Hess and Marathon Petroleum
According to analysts at Bank of America Corp., ESG equity funds operating in Europe have been growing their investments in energy businesses, such as Shell Plc, Repsol SA, Aker BP ASA, and Neste Oyj. This year, Shell received approximately 6 percent of the capital invested, but in 2021, it received no investment at all.
The outperformance of fossil-fuel equities — the S&P 500 Energy Index is up 30 percent this year — and anticipation that the world’s largest oil and gas corporations will invest more to make the transition to cleaner energy are the primary drivers of the allocations.
Trojan Horse?
The ESG Funds are using the excuse of buying oil stock in order to turn them sustainable.
The Robeco QI Emerging Conservative Equities fund, which complies with Article 8 of the EU’s Sustainable Finance Disclosure Regulation, owns stock in carbon-intensive corporations such as China Petroleum & Chemical Corp. (Sinopec) and PetroChina Co.
These assets are justified by the managers of the $2.2 billion fund on the basis of their three-year goal to actively urge Sinopec and PetroChina to improve their performance in terms of sustainability. Robeco has stated that it will increase its equity interest in each of the companies if the engagement in question is successful. In that case, it will most likely sell its holdings.
Unfortunately, I think having ESG take control of the oil industry (which is the only sector going up) is a recipe for disaster from both an economic and national security perspective.
An example is one of the companies I personally invested in Exxon Mobil Corp. They are going through a fight with “activist” investors right now. The activists have recently installed three board members that are motivated to change the company from a profitable company to some kind of clean energy growth organization versus a mature profitable oil company. What this means to investors is that Exxon will be forced to invest money into questionable renewable energy rather than its core business.
Green energy is far from being able to create reliable and affordable energy. An example is Texas which has huge areas of wind energy that completely failed that forcing them to buy natural gas at a huge premium. As an investor, I would prefer to see oil companies do what is their proven business model and invest in green energy when it makes economic sense.
