European ESG funds will have to forcefully sell shares of oil companies
ESG funds operating in Europe risk forced divestment from oil and gas companies under new French legislation.
Under the new regime, ESG funds that want to obtain the official French "socially responsible" investment label will be banned from holding shares in oil and gas companies engaged in new exploration and production.
Since there is virtually no oil and gas company that does not engage in new exploration and production, the new rules would lead to divestment, as the Financial Times reports, citing financial industry sources.
Furthermore, given that ESG funds operate cross-border in Europe, those based in France will not be the only ones affected by the new rules. The legislation will expand to other countries, due to the rules of the single market.
“It is safe to assume that virtually all companies involved in oil and gas exploration, production and refining are continually looking to expand their oil and gas operations,” Hortense Bioy, global director of sustainability research at Morningstar, told the FT .
“Investors will be hard-pressed to find an oil and gas company that doesn't plan to replace declining production from old fields with the development of new fields, whether in oil or gas,” Bioy added.
Meanwhile, a Deutsche Bank executive recently told Reuters that oil and gas stocks should be included in all ESG investment funds, to ensure the necessary stability and predictability.
“When we think about clean energy, these are quite new and interest rate sensitive business models,” Markus Mueller, Deutsche's ESG chief investment officer, told Reuters. “Investors are looking for traditional energy companies that have investments in renewable energy… They prefer transition over exclusions.”
Mueller was likely referring to the recent market crash in wind and solar stocks, which have been affected by rising interest rates while oil and gas stocks have not been, thanks to the latter's strong liquidity position.
According to the FT, funds that currently carry the French sustainable investment label hold around €7 billion in oil and gas stocks.
However, don't worry: non-ESG funds will simply earn more by investing in classic energy companies. This decision will if anything make ESG funds even more problematic to place.
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The article European ESG funds will have to force sell oil company shares comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/i-fondi-esg-europei-dovranno-forzatamente-vendere-le-azioni-delle-societa-petrolifere/ on Sat, 30 Dec 2023 07:00:29 +0000.