White Paper - Carbon Conscious Investing in Oil & Gas - A Case For Carbon Offsets
Steffen Dietel, CFA, & George Nadda , CFA. Portfolio Managers of the Altana Distressed Opportunities Fund
Introduction
ESG investing makes a lot of sense. Companies with strong governance, which are mindful of their environmental footprint and social responsibility, stand every chance to financially outperform rivals that ignore these topics. Altana recently signed the Principles for Responsible Investing instituted by the United Nations (UNPRI) and when it comes to the underlying ideas behind ESG, we fully endorse them.
But how do we square that with a portfolio that is invested in fossil fuel related securities in the offshore oil & gas services sector?
While we do have issues with how ESG is implemented, monitored and sold to investors we believe the oil & gas industry can play a valuable role in the process towards a net zero carbon economy. To our mind there is no inherent contradiction between the concept of ESG based investing and investing in fossil fuels.
But the oil & gas industry does have some serious issues to overcome…
Conclusion
The path to a carbon emission-free planet is difficult and will require tremendous efforts from all stakeholders. Moving large parts of the energy supply chain into renewables without denying large parts of the global population continued growth and prosperity is one of the major challenges. In the foreseeable future we struggle to see how this can play out without oil & gas remaining a key component of energy production. That said, whatever can be done to improve or absorb the carbon emissions profile of the industry needs to be relentlessly pursued. This is why carbon offsets have an important role to play in this transition alongside the other mechanisms which are in place.
We are convinced it can be implemented successfully and the cost is not prohibitive even for a carbon heavy fund like ADOF. Costs should be substantially lower for broader portfolios but they will almost certainly rise over time. This should incentivise all portfolio managers to push for an improved emissions profile of companies they are engaged with. Carbon emissions will become a true holding cost in a portfolio.