ESG funds operating in Europe are facing a forced divestment from oil and gas companies under new French regulations.
Per the new regime, ESG funds that want to earn the official French label of "socially responsible" investing, will be banned from holding stocks 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 mean divestment, the Financial Times reports, citing sources from the financial industry.
What's more, since ESG funds operate across borders in Europe, French-based ones will not be the only ones affected by the new rules.
"It is fair to assume that virtually every company focused on oil and gas exploration, production and refining is continuously looking to expand its oil and gas activities," Hortense Bioy, Morningstar's global director of sustainability research, told the FT.
"Investors would be hard-pressed to find an oil and gas company that doesn't plan to replace its declining production from old fields by developing new fields, be they on the oil side or the gas side," Bioy added.
Meanwhile, a senior executive from Deutsche Bank recently told Reuters that oil and gas stocks should be included in all ESG investment funds, to provide much-needed stability and predictability.
"When we think about clean energy, these are business models which are quite new and sensitive to interest rates," Markus Mueller, Deutsche's chief investment officer ESG, told Reuters. "Investors are looking for traditional [energy] companies that have capex in renewables... They prefer the transition than to exclusions."
Mueller was probably referring to the recent market crash in wind and solar stocks that got pummeled by higher interest rates unlike oil and gas stocks thanks to the latter's strong cash position.
Per the FT, funds that currently have the French sustainable investment label hold some 7 billion euro in oil and gas stocks.
By Irina Slav for Oilprice.com
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
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Comments
Without sizeable and regular investments in the global oil industry, the world will face shortages and rising costs of energy and manufacturing thus sharpening inflation and cutting global economic growth.
In a nutshell, the French are cutting off their nose to spite their face.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert