2022, the year of the triumph of oil companies over ESG ones

For several years, oil and gas companies have found themselves the target of attacks from “activist” investors, the non-government sector and governments for their alleged negative role in climate change.

From shareholder resolutions calling for greater efforts to reduce greenhouse gas emissions to lawsuits to force oil and gas operators to effectively limit their core business, attacks on oil companies have been relentless. As a result, oil and gas stocks have become pariahs of the equity markets, just as their issuers have become pariahs of business and finance, to the point of trying to reinvent themselves. This until this year.

This year, a staggering number of countries realized that while reducing emissions may be a noble goal, the immediate priority was to have electricity without blackouts. As a result of this realization, the use of fossil fuels in the forefront of climate change in Europe has increased significantly, dragging oil and gas prices with it.

As prices have risen, so have the stock values ​​of oil and gas-related companies. Indeed, the latter have risen so impressively that they have become the best performers in the market this year. The reason: the enormous profits made in the context of the European energy crisis, which, needless to say, also attracted the hostile attention of climate-conscious governments.

The Financial Times reported this week that as many as 15 of the S&P 500's best performers are expected to come from the energy sector, with Occidental Petroleum topping the list after its stock has gained 120% this year. Furthermore, the energy sector performed stellar in a year when the broader equity market fared much weaker, due to aggressive monetary policy tightening in both the US and Europe and a surge in bond yields that has drawn investors away from equities, hurting some of the best performers of the recent past.

Bloomberg noted in a recent report that the 21% plunge in the S&P 500 is on track to become the biggest since the 2008 global financial crisis. Only this time it's Big Tech that has suffered the most – Meta alone has lost 60% this year – along with cryptocurrency companies, which have taken further hits from the crashes of digital currencies and the crypto exchange collapse FTP extension.

Tesla also did not survive this year's stock market turmoil unscathed: In recent weeks, the company has lost up to 70% of its value due to growing fears about the demand for electric vehicles. Many have called the price drop a long-overdue correction and reality check, but Elon Musk has assured Tesla employees that the company will return to its top-valued state.

Meanwhile, energy stocks have collectively gained about 60% this year in the U.S. alone, the FT notes in its report, and look increasingly attractive to investors who previously wary of oil and gas due to their track record. records of issues and consultants dedicated to ESG who argue that in the long term the only valid investment is ESG.

Also this year, the ESG narrative has started to unravel: ESG funds have significantly underperformed traditional funds and evidence is accumulating that this is not a temporary glitch, but rather an investment trend. ESG that favors political priorities over financial ones. ESG investing has also come under scrutiny from Congress and Republican-dominated state legislatures.

Against this backdrop, and with demand for oil and gas on the rise – a fact not even the International Energy Agency has contested – it was only a matter of time before investors remembered what their number one investment priority was: make money.

With profits at record highs and windfall taxes threatening future spending on increased production, oil and gas companies are more than happy to continue giving money back to investors, both in Europe and the US , but especially actively in the US shale patch.

The US oil and shale gas industry became a textbook example of flexibility this year, when it defied all expectations of rapid production growth, preferring instead to stay on the sidelines of the game of global oil production growth, giving back cash to shareholders and leaving production growth for the future.

But Big Oil is also returning hefty dividends thanks to its record profits this year that have prompted many governments to demand rain taxes because, ironically, Big Oil wasn't using its record profits to produce more oil, which was exactly what those same governments wanted Big Oil to do before they ran into a fossil fuel shortage.

Thanks to a strong year in which many were forced to remember that the world is running on oil and gas, not yet wind and solar, the oil industry has also gotten bolder in its reactions to hostile governments and non-profit organizations. governmental.

TotalEnergies has filed a lawsuit against Greenpeace France for spreading "false and misleading information" about the oil major's emissions, after Greenpeace released a report that said natural gas emissions have been minimized.

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The article 2022, the year of the triumph of oil companies over ESG comes from Scenari Economici .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/il-2022-lanno-del-trionfo-delle-societa-petrolifere-su-quelle-esg/ on Mon, 02 Jan 2023 07:00:32 +0000.