Big Oil has a place in ESG funds, says Deutsche Bank CIO

Fossil

21/11/2023 13:56

By Tommy Wilkes
       LONDON, Nov 21 (Reuters) - Sustainability funds should
be able to hold traditional energy shares because excluding them
is denying investors one of the best ways to bet on a shift to
renewable energy, a senior ESG executive at Deutsche Bank's
Private Bank said on Tuesday.
    Fossil fuel stocks have boomed  .dMIWO0OG00PUS  since
Russia's invasion of Ukraine in February 2022 sent fossil fuel
prices soaring, leaving the performance of environmental, social
and governance (ESG) funds lagging.
    Pure-play renewable energy stocks such as Orsted  ORSTED.CO 
and First Solar  FSLR.O  have also fallen sharply this year as
higher interest rates and inflationary pressures squeeze
profitability.
    Markus Müller, chief investment officer ESG at Deutsche
Bank's Private Bank, said the fossil fuel effect was behind a
drop in a recent survey in the percentage of investors who
believe ESG factors can help manage risks to their portfolios.
    "When we think about clean energy, these are business models
which are quite new and sensitive to interest rates," Müller
told Reuters, noting that the number of "meaningful" global wind
power players had reduced to three from eight before COVID-19.
    "Investors are looking for traditional  energy  companies
that have capex in renewables... They prefer the transition than
to exclusions," he added.
    European oil and gas companies including BP  BP.L  and Shell
 SHEL.L  have increased renewable energy investment, although
they are expanding production of dirtier energy too.
    Sustainability-minded investors, Müller said, needed more
disclosures from firms about their plans for shifting to
lower-carbon models, and regulatory clarity on labelling
transition-focused funds.
    ESG approaches range considerably and many funds invest in
fossil fuels, but as regulations tighten more exclusions are
possible.
    France has said that from 2025 funds using the 'ISR' label,
or Socially Responsible Investment label, could be banned from
investing in firms involved in the exploration, exploitation and
refining of new fossil fuels. Morningstar estimates that 45% of
funds have exposure to traditional energy, totalling 7 billion
euros ($7.6 billion). 
    Investors remain committed to sustainability goals, Deutsche
Bank's Chief Investment Office ESG survey found, with 18% of
respondents choosing the energy transition as their preferred
investment opportunity, beating artificial intelligence.
    Yet fewer investors are confident ESG factors can help
manage portfolio risks -- 37% of respondents strongly or
slightly agreed, down from 44% last year and 48% in 2021.
    The survey, which received 1,759 responses, mostly in
Europe, also found that only 15% of investors said they had a
good knowledge of ESG, while 3% considered themselves experts.

($1 = 0.9168 euros)

 (Reporting by Tommy Reggiori Wilkes; Editing by Susan Fenton)
 ((thomas.wilkes@tr.com; +44 (0) 7769 955711;))