The global transition from fossil fuels to clean energy isn’t going to happen because it’s the best choice for human health and the environment. Observing the way humans have responded to the current pandemic should put to rest any delusions about our propensity to “do the right thing.” No, companies and investors will abandon polluting energy sources when they become convinced that it’s the profitable thing to do. Fortunately, we’re seeing strong signs that this is beginning to happen.
Alex Kimani, writing in the oil industry trade magazine OilPrice.com, explains how an increasing number of large institutional investors are shifting their assets from the oil patch to what are called “ESG” (Environmental, Social and Governance) investments—a category that includes renewable energy and e-mobility.
Blackrock is the world’s largest asset manager, with almost $8 trillion in funds under management. It has been bulking up on ESG-oriented investments over the past year, and perhaps more importantly, it recently signaled that it will be lending a more sympathetic ear to activist shareholder groups that are challenging boards of directors at companies in polluting industries.
An increasingly large number of such groups have been pressuring oil firms and others to do more to prepare for the coming transition to clean energy—not because it’s the right thing to do (although, to be fair, that is certainly a part of their arguments), but because the boards’ business-as-usual attitudes threaten the companies’ bottom lines.
ExxonMobil, among other oil giants, is facing increasing pressure from major investors to clean up its act. An activist investor group called Engine No. 1, which includes the founders of hedge funds including Partner Fund Management and JANA Partners, plans to seek four board seats at the fossil fuel behemoth, with the aim of radically changing the way Exxon does business.
California pension giant CalSTRS, which invests on behalf of the state’s teachers, is a backer of Engine No. 1. “With Exxon it has been very unsuccessful, sadly, trying to get their attention, change their behavior,” CalSTRS Chief Investment Officer Chris Ailman told CNBC. “This company is just throwing money after projects that are not going to be successful. Exxon...has been focused on drilling every last molecule of carbon. They need to wake up and realize the future is different.”
ExxonMobil recently announced a half-hearted plan to reduce its greenhouse gas emissions—a move that activists and analysts scorned as totally inadequate. “A 15%-20% reduction in greenhouse gas emissions intensity over nine years is not an ambitious target—it’s essentially business as usual,” said Raymond James Energy Analyst Pavel Molchanov.
“Nothing in ExxonMobil’s stated plans better positions it for long-term success in a world seeking to reduce total greenhouse gas emissions,” said an Engine No. 1 spokesperson.
While some mega-investors are trying to modify the oil giants’ behavior, others are simply heading toward the exits. New York State’s $226-billion pension fund recently announced plans to divest from oil and gas stocks entirely over the next few years.
Big Oil’s loss is clean tech’s gain—investments in ESG-oriented companies have steadily grown over the past couple of years, and this year’s pandemic has kicked the trend into overdrive. Investors’ appetite for e-mobility stocks has become nothing short of ravenous—in a stroke of poetic justice, Tesla has displaced Occidental Petroleum as a member of the S&P 100 index, and EV-related firms are going public at a frenzied pace.
According to OilPrice.com, sustainable investing assets now total $17.1 trillion—up 42% from 2018—and three quarters of institutional investors plan to stop investing in companies that aren’t considered sustainable.
Ironically, oil company stocks, once seen as safe bets for little old ladies’ nest eggs, are increasingly considered risky investments, while clean tech, once seen as a volatile emerging sector, is now seen as a safe harbor amid the coming storm.
“This isn’t about morals or ethics,” writes OilPrice’s Alex Kimani. “It’s about the free market. Sustainable stocks are outperforming everything else because they are the new safe haven—one that makes money while de-risking from the looming climate threat.”