Investors Views on ESG – Do UK Pension Funds Attacking Oil Majors Risk Litigation Themselves?
Do the UK pension funds attacking Shell and bp risk giving life to an anti-woke/anti-ESG movement in Europe? When bp announced its change in strategy and its plan to increase spending on traditional oil and gas, its stock rose over 8%. As we have noted in extensive prior research (see “Who’s Fine Is It Anyway”? Everyone Gets Sued; Nothing Gets Done and
The Black Knight Strikes Again – Constrained at Every Step or Hop), the multiple of earnings being given to European integrated oil companies appears to be inversely correlated with the degree of portfolio transformation promised. Investors are not nearly as interested in transformation stories as they are the cash flows from oil and gas – or so it would appear. The UK pension funds pushing Shell, bp and others are at risk of failing in their fiduciary responsibility to the pension holders that they represent – they are pushing for strategies that all evidence to date would suggest will drive underperformance.
This is different but also related to the anti-woke/ESG wave in the US, which is primarily political, but based on a handful of robust claims, one of which is the potential for pension fund underperformance if whole classes of equities are ignored. Other claims in the US are suggesting that some of the social and inclusion moves that companies are expected to make have gone too far. The pension fund responsibility to the money it manages and the individuals it represents is by far the stronger argument today. If energy companies pursuing greener agendas were seeing elevated share prices – they would keep pursuing greener agendas – possibly more aggressively. The boards of directors of Shell, bp and others have responsibilities to more than just environmental activists, including their employees and the other employment/communities that they support – they are also huge tax payers when times are good, which should also be considered.
With the approval of the Willow project in Alaska this week, President Biden and his administration are accepting one of the very strong consensus conclusions that emerged from CERA Week presentations, which is that the world will need hydrocarbons for longer. In the article below, Secretary Granholm is not suggesting that the energy leaders are going to stop producing – she is arguing that they are focused on doing it more cleanly, while at the same time taking the opportunities the IRA and other programs offer to help diversify. US companies are much more focused on decarbonizing their portfolios than diversifying into electric power, like Shell, bp, TotalEnergies and others in Europe, and this is sitting much better with shareholders
What are the anti-woke and anti-ESG movements?
The terms “anti-woke” and “anti-ESG” refer to movements or attitudes that are opposed to the principles of social justice, inclusivity, and sustainability that are central to the woke and ESG (Environmental, Social, and Governance) movements, respectively.
The “anti-woke” movement is generally associated with a rejection of progressive social movements and a defense of traditional values and cultural norms. It often involves criticism of political correctness, cancel culture, and other perceived excesses of the progressive left.
The “anti-ESG” movement, on the other hand, is generally associated with skepticism or opposition to environmental, social, and governance initiatives aimed at promoting sustainable business practices and reducing the negative impact of corporate activities on society and the environment. Critics of ESG investing argue that it is based on ideological considerations rather than sound financial analysis, and that it could lead to reduced profitability and economic growth.
Both of these movements have gained significant attention in recent years, particularly in the context of debates over the role of corporations in society and the appropriate balance between social responsibility and shareholder value. However, it is worth noting that these movements are not monolithic and encompass a range of views and perspectives.
All data for this publication is sourced from C-MACC reports, Corporate Reports, Bloomberg, and Government Publications.
©2023 C-MACC, 1160 Dairy Ashford, Suite 609, Houston, TX 77079. All rights reserved. The information contained in this blog has been obtained from sources believed to be reliable, and its accuracy and completeness are not guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and other information provided are subject to change without notice. This article is issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and is not construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results.
See Recently Published Reports:
Higher commodity prices drove the outperformance of the energy sector in 3Q23 – a headache for ESG funds, which mostly underperformed during the period. It is hard to find something to recommend for Q4, but both the Industrial Gas group and the Water sector likely offer stability in the midst of uncertainty.
Energy Transition Demand Losing To Global Economic Malaise – Good For Buyers Bad For Investment, For Now
The decline in critical mineral prices suggests that the macroeconomic backdrop has influenced demand more than energy transition growth. Lower prices favor stalling growth investments. There is a risk that this continues through 2024, and the recovery after that exposes significant critical mineral shortages because of the investment lag – lithium looks OK, but others…
The outperformance and underperformance of ESG and anti-ESG stocks appear primarily based on whether you own oil and gas stocks – other factors seem small. ESG/sustainable investing is losing its appeal because it is less clear what it means, and regulatory changes, expected to make it better, remain absent. As the developed world states a…