Responsible investors can be divided about whether to divest oil and gas or embrace the sector’s net-zero commitments.James Gabbert
Oil-and-gas holdings are a topic of debate in the responsible investing space.
Some funds exclude the fossil-fuel sector, and many investors avoid it, typically citing concerns about climate change. On the flip side, industry players have been making progress toward becoming more sustainable, and shareholders are often in a position to hold them accountable, which appeals to some investors.
“ESG (environmental, social and governance) investment is a mindset that will eventually make the world a better place,” says Alex Nayyar, vice-president and portfolio manager with Toronto-based Treegrove Investment Management Inc. “There is no doubt that the transition to a sustainable future will take time, and investors will play a critical role in ensuring that companies strive to meet their carbon emission targets.”
Fossil-fuel companies are among the largest emitters of greenhouse gases and they are often shut out of responsible investing portfolios. A landmark report from the Climate Accountability Institute and the Carbon Disclosure Project found that just 100 active fossil-fuel producers were linked to 71 per cent of industrial GHG emissions since 1988.
However, a November, 2022 survey by S&P Global Commodity Insights found that two-thirds of the world’s largest oil-and-gas companies now have net-zero emissions targets.
When it comes to investment decisions, the issue isn’t black and white. GHG emissions are just one of many factors that investors and fund managers assess around ESG performance, alongside such things as labour practices and board diversity. Through shareholder engagement, investors can use their voices to influence better emission and other ESG practices.
Mr. Nayyar says he believes he has a fiduciary responsibility to invest in companies, primarily large cap, that have a good return on investment. He recognizes that many of these companies have ESG mandates too. For some investors, that might be enough. If others have particular concerns about emissions or other aspects of performance, “we will carve out customized portfolios which meets their objectives.”
Robert Duncan, senior vice-president, portfolio manager and lead ESG officer with Toronto-based Forstrong Global Asset Management Inc., adheres to a strict ESG investment policy, but he says he cautions investors who want to omit a sector.
“By restricting certain asset classes, they might be subject to a sub-optimal portfolio that doesn’t deliver the highest risk/adjusted return. Some clients might be willing to accept the trade-off, as they believe it’s their contribution to make a difference,” he explains.
Investors do not necessarily have to make a financial sacrifice if they abandon the oil-and-gas sector, or if they focus on ESG generally. Companies with higher ESG ratings usually have a higher shareholder return, notes Benoit Gervais, senior vice-president, portfolio manager and head of the Mackenzie Investments resource team in Toronto. He adds that the cost of capital can be higher for companies with lower ESG scores.
Oil-and-gas companies face that risk, and they need to stay ahead of investor expectations regarding sustainability and ahead of the regulatory curve. As part of Mr. Gervais’ investment process for any sector, “we engage with companies to discuss their plans for decarbonization, go through their plans seriously and scientifically, and make comparisons to find best-in-class companies.”
In a recent post, the United Nations Development Programme stated that “we cannot address the climate crisis without looking at the true cost of our addiction to oil, coal and gas.” Societies and many investors are taking heed. While renewable energy may be the future, “breaking up with fossil fuels,” as the UNDP titled its post, will take time.
Given the pace of the energy transition, some investors don’t want to lose out on this sector, especially one that’s a hallmark of a diversified Canadian portfolio. As they make plans to reach net-zero emissions by 2050, many oil-and-gas companies are being seen in a more positive light.
Investors of all sorts, including responsible investors, will come to different conclusions about reducing or restricting a given sector. But when investing in fossil fuel or any other companies, “the only way to generate profits is to insert an ESG lens based on a set of universal values,” Mr. Gervais says.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
