Bleak future for oil as investors fear ESG concerns
Oil will be ‘the paraffin’ of the future, according to Ninety One strategist Michael Power, as investors abandon investing in the sector over environmental, social and governance (ESG) concerns.
In a webcast, Power said investment in oil was shrinking as investors demanded renewable or green energies instead amid environmental concerns over traditional fossil fuels.
“Oil will become like paraffin which ran everything in the 1900s all over the world but is now barely used apart from a few areas. People are abandoning oil and investing in green, renewable energies instead.
“There is already no investment in coal, we are seeing investors actively refuse to invest in.”
The Responsible Investment Association of Australasia (RIAA) described climate change as the “the most pressing of our future” and said many firms were taking negative screens to fossil fuel companies to exclude them from portfolios. Others, particularly super funds, were retaining exposure but engaging with companies to change their behaviour.
According to FE Analytics, major oil companies had lost between 20%-48% over one year to 31 August with the worst-performing oil stock being Oil Search which was down 48%.
Share price performance of leading Australian oil companies versus ASX 200 over one year to 31 August
From a fund perspective, the BetaShares Crude Oil Index ETF was the worst-performing commodities fund in the Australian Core Strategies universe with losses of 69% over the year to 31 August compared to average returns of 8.5% for the commodities and energy sector.
Performance of BetaShares Crude Oil Index ETF versus commodities and energy sector over one year to 31 August
For coal companies, the story was even worse with Whitehaven Coal losing 70% over the one year to 31 August after it announced profits had fallen 95% in FY20 as prices of coal plummeted during the pandemic.
The company was also under fire from activist investors who were seeking to encourage the company to close as it argued there was limited viability for coal in the future.
Share price performance of Whitehaven Coal versus ASX 200 over one year to 31 August
AUTHOR
Laura Dew
Recommended for you
Tribeca Investment Partners has made a distribution hire from Australian Ethical in a newly-created role focused on the national intermediary market.
Asset managers may be urged to diversify their product ranges, but investment executives have warned any M&A deal should avoid simply filling gaps and instead consider long-term value creation.
Specialist wealth platform provider Mason Stevens has become the latest target of an acquisition as it enters a binding agreement with a leading Sydney-based private equity firm.
Fund managers are entering 2025 with the most bullish sentiment since August 2021 and record high allocations to US equities, thanks to the incoming Trump administration.
