Over the last few months, we conducted a deep dive into our portfolio energy holdings, reassessing their plans for the transition to a low carbon economy and meeting their obligations under the Paris Agreement. This transition holds a lot of risk, as well as potential reward, for shareholders like us. Recently, we have seen risk materialise in dividend cuts, impairment to equity and share price declines; driven by the Covid-19 demand shock and the oil price war supply shock, but also due to divestment motivated by climate change, accelerated by environmental and social issues taking centre stage during the pandemic. What we are looking for are companies that can navigate the transition and be in a strong position to supply what will be a growing demand for energy through and beyond the transition period. Population growth and the quest for rising standards of living will drive demand; the landscape on the supply side will change radically.
Across our different mandates we own shares in Total, Royal Dutch Shell, bp and Eni. First the good news; in our opinion the European majors ‘get it’ – they get that climate change is happening, that regulation is coming down the track, that carbon pricing and carbon tax is very much on the horizon in a meaningful way and that they have to communicate the fact that they ‘get it’ to retain their social licence to operate. This contrasts with their American peers, particularly Exxon Mobil, who are well behind on these issues.
However, while they now acknowledge the issues, publish lots of reports and set lots of long-term targets, there is an amount of work still to do. Here are ten takeaways from our analysis and communications with the four companies mentioned: