While fossil fuels are “on the way out”, investment firms should avoid completely ignoring energy companies as they will be vital as Australia transitions to decarbonisation.
ClimateWorks Australia forecasted earlier this year that Australia could achieve net zero emissions by 2050 through accelerated deployment of zero-emission technologies and meet the Paris climate goal to limit global temperature rise to two degree Celsius. This included 100% renewable storage, electric vehicles and sustainable agriculture practices.
Speaking at the Morningstar Investment Conference, Schroders head of Australian equities, Martin Conlon, said this would be focus for energy companies in the future. For this reason, he was cautious about completely divesting from them from an environment, social and governance (ESG) perspective.
Many firms have stated they are avoiding investing in energy or mining companies for ESG reasons on the basis on the impact of fossil fuels.
“There is no doubt that fossil fuels are on their way out, and so they should be,” said Conlon. “But we have a problem as someone needs to invest aggressively in decarbonisation as energy is the lifeblood of every company and without it no company would exist.
“Given the investment needed for decarbonisation will come from companies in the energy sector, running away from energy firms at a million miles an hour will only mean that the Government will need to step in instead.”
Hyperion Australian Growth fund manager Mark Arnold said he believed that fossil fuel companies and the industry “would disappear in the next 10-20 years”.
Meanwhile, Arnold commented that more than three quarters of the Australian market were vulnerable to disruption in the future.
“In our view, the Australian benchmark is made up of low-quality businesses, some 77% of the index is in old world businesses that are mature. Disruption is not going away and it will accelerate into more industries.
“You won’t get that compounding effect that builds growth over the long term from these companies anymore as they will be disrupted and that will eat away at their earnings.”
