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
The above information is an excerpt from our report titled “Carbon Capture – Increasingly the Key To Energy Transition“
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.
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See Recently Published Reports:
Hitching Up – North American Methanol Producer Benefits To Grow Beyond Regional Cost Advantages
We hold a long-term constructive view of North American methanol. Like ammonia, regional cost advantages will enable exports as global demand sources broaden faster than supply. US natural gas prices remain under pressure while support signals in oil markets emerge mid-week despite demand concerns. This setting is a plus for North American chemical producers We highlight continued weakness in Chinese spot lithium prices, which are considerably lower than four months ago, and the relative movements in US, Asia, and Europe butadiene spot prices. We flag the ability to source waste as a limitation to the growth in advanced recycling, discuss blue hydrogen government funding skepticism, and generally highlight the geothermal market. An era of “free money” is over, although Apple will still give you credit. Significant inflation that preceded higher interest rates will keep global economic growth in check for some time.
Facing The Sea – North American PE Exports To Likely Set Record In 2023, Cost Curve To Determine Profitability
North American polyethylene (PE) exports will likely hit a record level in 2023, enabled by its sizable cost advantage relative to Asia and Europe—global PE markets to reflect trough setting. We flag significant moves by Aramco to push its business further downstream in refining and petrochemicals, with an array of growth projects underway for development in China. We discuss the importance of a steep global ethylene cost curve for US polyethylene exporters and add to our thoughts about energy and chemical producers combining to extend value chains. We discuss the challenges to producing green chemicals, specifically ammonia in Europe, as it appears to be under review at Adnoc. We also provide thoughts on growth in RNG markets. China has boosted economic stimulus to spur growth, which appears highly needed in light of Maersk and SABIC commentary on demand. A global demand surge seems unlikely near term.
Global Chemical Update – Study Time!
Energy companies looking to push their value chains downstream into petrochemicals through M&A should take advantage of weak conditions in 2023 before a likely upturn in many polymer profit cycles. North American chemical producers enjoy a sizable cost advantage relative to Asia and NW Europe. We flag the WoW drop in US natural gas and USGC ethane relative to Brent Crude and Ex-US naphtha. US ethylene producers are profitable across all primary feedstocks, with ethane moving back into a cost-advantaged spot WoW relative to propane. Asia and European cracker margins remain negative.