Energy Crisis Prompts ESG Rethink on Oil and Gas

Investors are starting to look more favorably on oil and gas companies because of their role in the transition to a decarbonized economy.

Chris Flood, Financial Times
Energy Crisis Prompts ESG Rethink on Oil and Gas

European funds that employ ESG metrics as a group are heavily “underweight” in oil and gas stocks but some tentative signs of a shift in positioning have appeared. For example, 6% of European ESG funds now own Shell Plc, compared to 0% at the end of last year, according to Bank of America. Pictured, Shell Helix Ultra steel drums. (Source: Tricky_Shark / Shutterstock.com)

Russia’s invasion of Ukraine has made the immense task of reducing the global economy’s addiction to fossil fuels even more daunting. Existing pledges to cut carbon emissions to net zero by 2050 were already challenging enough. Now, governments and companies are scrambling to balance their green ambitions with the new imperatives of energy security.

Just as the Ukraine war has sparked intense debate over whether defense companies should be considered suitable for sustainable investment strategies, the conflict has also prompted discussion about the role of oil and gas producers in investors’ portfolios.

Mark Lacey, lead manager of Schroders’ $3 billion ISF Global Energy and Energy Transition strategies, says that investors are starting to look more favorably on energy companies because of their vital role in the transition to a decarbonized economy. He adds that these businesses “have been taking the net-zero challenge much more seriously” since 2015, through investments in technologies such as hydrogen and carbon capture.

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