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 down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
