# Retreat or Engage? Green Investors’ Big Oil Dilemma

An episode of [Switched On](https://invisiblenetwork.ai/podcast/1469286286), 2 Nov 2023, 31 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/01a10738-3608-4dec-883c-ae3c00026b36/b4c7629f-b2e8-4485-b6e2-b0ae009f7884/audio.mp3?utm_source=Podcast&in_playlist=6d114f63-833d-4b78-bbf5-ae3c00026b44

Oil and gas majors have long stated their intention to diversify away from fossil fuels and move toward clean energy production. However, in the last few years, many have wound back these plans, shooting for less ambitious targets or returning to their traditional business models. Against this backdrop, can climate-conscious investors hold major fossil-fuel companies to account? On today’s show, BNEF Sustainable Finance analyst Ryan Loughead hosts a conversation on oil and gas investment with panelists Annika Brouwer, Sustainability Specialist at Ninety One Asset Management; Ronan Hodge, Technical Lead from the Glasgow Financial Alliance for Net Zero (GFANZ); Thina Saltvedt, Chief Analyst in Sustainable Finance at Nordea Bank; and Peter Taylor, Corporate Engagement Programme Director for the Institutional Investors Group on Climate Change (IIGCC). Together they discuss the different approaches of asset managers who keep oil and gas investments on their books, the challenges around divesting from fossil-fuel holdings, and the varying strategies of oil and gas majors themselves. Today’s episode was recorded live at BNEF Summit London. To learn more about BNEF’s Summits and to listen to more interviews, please visit https://about.bnef.com/summit/. Complimentary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal, on bnef.com or on the BNEF mobile app. See omnystudio.com/listener for privacy information.

## Transcript

[0:00] Speaker 1: This is Dana Perkins and you're listening to Switched on
[0:03] Speaker 1: the B and EF podcast. Since twenty eighteen, European oil
[0:07] Speaker 1: majors have walked a fine line between retaining cash generating
[0:11] Speaker 1: legacy oil and gas operations on the one hand, and
[0:15] Speaker 1: ramping up investment in low carbon activities on the other.
[0:18] Speaker 1: But as record high oil and gas prices on the
[0:21] Speaker 1: back of the pandemic rebound and Russia's invasion of Ukraine
[0:25] Speaker 1: has put the sector's climate ambitions in jeopardy in favor
[0:28] Speaker 1: of energy security and profitability, how should shareholders react? This
[0:33] Speaker 1: poses a dilemma for climate conscious shareholders and lenders. What
[0:37] Speaker 1: strategy should be adopted when neither engagement nor a di
[0:40] Speaker 1: investment have resulted in a meaningful impact in the face
[0:44] Speaker 1: of heightened profits, and what approaches should be taken to
[0:47] Speaker 1: keep portfolios net zero aligned through the inevitable ebbs and
[0:51] Speaker 1: flows of commodity price cycles. So in today's show, we
[0:55] Speaker 1: bring you a panel from one of B and EF's
[0:57] Speaker 1: recent summits taking place in London. Ore Sustainable finance analyst
[1:01] Speaker 1: Ryan Lockhead chaired a panel that included Onika Brauer, sustainability
[1:06] Speaker 1: specialist at ninety one Asset Management, alongside Ronan Hodge, technical
[1:10] Speaker 1: lead analyst from Glasgow Financial Alliance for net zero, along
[1:14] Speaker 1: with Tina Salvett, chief Analyst for Sustainable Finance at Nordea
[1:18] Speaker 1: Bank and Peter Taylor, Corporate Engagement program Director from Institutional
[1:22] Speaker 1: Investors Group on Climate Change. Among the topics discussed were
[1:26] Speaker 1: the approaches of asset managers who retain oil and gas
[1:29] Speaker 1: investments on their books but also have climate conscious focus
[1:33] Speaker 1: to their investment strategy. They also discuss the challenges around
[1:36] Speaker 1: divestment of fossil fuel holdings and whether or not this
[1:39] Speaker 1: is even the correct approach, especially in light a few
[1:42] Speaker 1: du shary duties, and if not, where can pressure best
[1:45] Speaker 1: be applied. And lastly, they came to the fossil fuel
[1:48] Speaker 1: companies themselves, their own varied strategies towards diversification of energy
[1:52] Speaker 1: sources and the balance that they have to strike between
[1:55] Speaker 1: energy security and the energy transition. For more information about
[1:59] Speaker 1: BEVINGNA summits taking place in cities around the world and
[2:02] Speaker 1: toy replays from some of the beanf talks and debates
[2:05] Speaker 1: which took place at our recent event in London, head
[2:08] Speaker 1: to about dot BNAF dot com Forward slash Summit. As always,
[2:13] Speaker 1: if you like this podcast, if you subscribe and you
[2:16] Speaker 1: set up alerts on your phone, you'll receive one when
[2:18] Speaker 1: we publish a future episode. And if you give us
[2:21] Speaker 1: a review, it'll make us more discoverable by others. And
[2:23] Speaker 1: now let's jump to the panel at the b and
[2:25] Speaker 1: EF Summit London, which was titled how should investors react
[2:29] Speaker 1: to oil majors reducing their climate ambition?
[2:43] Speaker 2: Since twenty eight seen, large oil and gas majors have
[2:46] Speaker 2: largely maintained their legacy assets that have kept cash flowing,
[2:49] Speaker 2: but have also been gradually trying to position themselves to
[2:52] Speaker 2: present us being climate friendly. Indeed, BNF estimated that LU
[2:57] Speaker 2: carbon capital expenditures wre thirty two billion dollars last year.
[3:01] Speaker 2: That's the eight point three percent of the industry's total
[3:03] Speaker 2: kapex in that year, which was up from less than
[3:05] Speaker 2: one percent in twenty fifteen. However, according to the IA,
[3:11] Speaker 2: the oil and gas sector was still responsible for five
[3:13] Speaker 2: point one billion tons of zero two emissions in twenty
[3:16] Speaker 2: twenty two, which was fifteen percent of the total global
[3:19] Speaker 2: energy related emissions in that year. What's more, with the
[3:23] Speaker 2: advent of higher commodity prices, mainly sparked by Russia's invasion
[3:26] Speaker 2: of Ukraine and other blocks one events such as the pandemic.
[3:30] Speaker 2: Certain oil majors, including but not limited to Shell BP
[3:34] Speaker 2: Total Exon, have taken one big step back on their
[3:37] Speaker 2: climate commitments, most often citing a duty to shareholders as
[3:40] Speaker 2: the main driving force behind that. So I'm lucky enough
[3:44] Speaker 2: today to be joined before wonderful panelists from a variety
[3:47] Speaker 2: of different backgrounds and experiences, and we're going to try
[3:50] Speaker 2: and glean as much information on different perspectives from them
[3:53] Speaker 2: as possible, So welcome. First, we're going to set the scene.
[3:57] Speaker 2: We'll establish what's actually happening within the oil made particularly
[4:00] Speaker 2: over the last five years, on their operations, how they're
[4:03] Speaker 2: reacting to changes in the commodity prices, but maybe more specifically,
[4:07] Speaker 2: on how they're approaching climate change and how their commitments
[4:10] Speaker 2: have changed in that period. And then we're going to
[4:14] Speaker 2: change and the crux of the conversation is going to
[4:16] Speaker 2: be about how financial institutions and investors, banks, insurers, whatever
[4:20] Speaker 2: we want to get onto depends how the conversation goes,
[4:22] Speaker 2: how they should react and how they can react on
[4:25] Speaker 2: what's up their sleeves in order to try and drive
[4:28] Speaker 2: climate positive outcomes. First of all, we're going to set
[4:31] Speaker 2: the scene, so I want to know from each of
[4:34] Speaker 2: you about what you see and how it pertains to
[4:38] Speaker 2: your particular role at nor Data Bank. So we're going
[4:43] Speaker 2: to start with Tina, who used to be an oil analyst,
[4:45] Speaker 2: and what have you seen happen in the oil and
[4:49] Speaker 2: gas majors on how their business strategy has developed in
[4:52] Speaker 2: the last five years and then more recently, how their
[4:57] Speaker 2: climate strategies have developed and changed and maybe not for
[5:00] Speaker 2: the better.
[5:01] Speaker 3: First of all, I think we saw a change within
[5:05] Speaker 3: the oil and gas market in twenty eighteen approximately when
[5:10] Speaker 3: many of the oil companies, although they have tried before,
[5:14] Speaker 3: started to rephrase themselves as not oil and gas companies
[5:19] Speaker 3: and longer but more broader energy companies and much more
[5:24] Speaker 3: focused when they talked about themselves also and communicated about
[5:28] Speaker 3: how they wanted to be part of the energy transision
[5:32] Speaker 3: and also how they communicated in what part of the
[5:36] Speaker 3: energy transition they wanted to work. And some of them
[5:38] Speaker 3: also highlighted if they wanted to go into solar, if
[5:42] Speaker 3: they want to go into wind power, or if it
[5:44] Speaker 3: was carbon capture and storage. So I think it was
[5:47] Speaker 3: a lot of pressure on the companies at that time.
[5:51] Speaker 3: Then for the last one and a half years, I
[5:54] Speaker 3: would say after oil and gas prices increased. Of course
[5:57] Speaker 3: that was based on the unfortunate situation and the war
[6:00] Speaker 3: in Ukraine, that this has changed a bit how the
[6:05] Speaker 3: oil companies, both how they communicate but also how they
[6:10] Speaker 3: look at themselves in my view, because a bit how
[6:14] Speaker 3: they how they talk about themselves now is and and
[6:17] Speaker 3: the market is more rather than being the in a transition.
[6:22] Speaker 3: It's more, of course there still is in the transition,
[6:25] Speaker 3: but also how energy security has you know, moved up
[6:29] Speaker 3: on the agenda, and that has also done something with
[6:33] Speaker 3: the how they're talking about where they invest and also
[6:37] Speaker 3: the amount of investments starting to increase again at least
[6:40] Speaker 3: in the short term projects.
[6:43] Speaker 4: In the oil and gas sectors, so not as much.
[6:46] Speaker 3: Of course, that has something to do with oil and
[6:48] Speaker 3: gas prices as well, but in my opinion, it seems
[6:52] Speaker 3: like it's a bit more relaxed focusing on energy security
[6:55] Speaker 3: and a bit less focus on the energy transition. And
[7:00] Speaker 3: I hope that is not going to last for very long.
[7:03] Speaker 2: Do you think or that do you think that's a
[7:05] Speaker 2: little bit short sighted from them to try and move
[7:08] Speaker 2: away from thinking about the energy transition.
[7:10] Speaker 3: I think if they're focused on the short, shorter term project,
[7:14] Speaker 3: which could be detailed projects for example, that is, projects
[7:18] Speaker 3: that could come on line very very fast. But if
[7:23] Speaker 3: they think about more the year expensive, harder to get
[7:27] Speaker 3: projects that could take on average ten to or seven
[7:30] Speaker 3: to ten years before actually from your start a project, too,
[7:34] Speaker 3: you could see the oil and gas out in the market.
[7:37] Speaker 3: I'm more worried about those projects because they won't help
[7:40] Speaker 3: anything about the energy situation now and the energy crisis.
[7:44] Speaker 3: We'll have the last year and might have a tight
[7:47] Speaker 3: market for the upcoming winter, depends on how the winter
[7:50] Speaker 3: will turn out. But the longer term project are the
[7:55] Speaker 3: more costly project. I am worried that that could turn
[7:58] Speaker 3: out to be a strat their assets.
[8:01] Speaker 2: Peter, you're nodding.
[8:02] Speaker 5: You concur, yes, very much, well, I very much concur
[8:06] Speaker 5: with the timeline that Tina laid out that sort of
[8:08] Speaker 5: there was a shift a shift of yes, a shift
[8:12] Speaker 5: of economics of the oil and gas industry between twenty
[8:14] Speaker 5: eighteen and say twenty twenty one, well twenty twenty two onwards,
[8:19] Speaker 5: but also a shift of sort of narrative and sort
[8:22] Speaker 5: of context and sort of the messaging very much so.
[8:24] Speaker 5: But a couple of other distinctions I would make would
[8:26] Speaker 5: be between I think that's very true Europe, right, So
[8:29] Speaker 5: in Europe there has been that shift, but Europe was
[8:33] Speaker 5: a long way ahead of saying North America and other
[8:35] Speaker 5: parts of the world in terms of the oil and
[8:37] Speaker 5: gas sector and remain so right. I mean, I think
[8:39] Speaker 5: to be fair is that, yes, there it is disappointing
[8:42] Speaker 5: what's happened with particularly BP and SHELL, But I don't
[8:45] Speaker 5: want to let them off the hook, but to put
[8:47] Speaker 5: them in the seene To say that they've gone from
[8:49] Speaker 5: sort of doing these interesting things two or three years
[8:51] Speaker 5: ago to doing you know that they're just the same
[8:54] Speaker 5: as say, oil companies in other parts of the world
[8:57] Speaker 5: is probably sort of an overstatement of how big U
[9:00] Speaker 5: turn was. But the other distinction perhaps is is is
[9:05] Speaker 5: the one that I mentioned the sort of the short
[9:06] Speaker 5: term versus long term, and it's I think that's perhaps
[9:09] Speaker 5: where investors really need to kind of focus their engagement.
[9:12] Speaker 1: Is.
[9:12] Speaker 5: Yes, it's not surprising in any industry that if your
[9:15] Speaker 5: product goes up massively in price, there is a rethink
[9:18] Speaker 5: of strategy. I mean, we shouldn't in a sense we
[9:20] Speaker 5: should we shouldn't be surprised, right, So the first thing
[9:22] Speaker 5: is how should investors react, Well, they shouldn't be that surprised.
[9:27] Speaker 5: But it's that long term versus short term thing, right,
[9:30] Speaker 5: And that is so much of engagement with companies, not
[9:34] Speaker 5: just on oil and gas companies, not just on climate,
[9:36] Speaker 5: but across any kind of issue. One of the key
[9:40] Speaker 5: challenges for investors is to ensure that the management of
[9:43] Speaker 5: a company have their long term, long term shareholder value
[9:48] Speaker 5: in mind. And I think that's where you where where
[9:51] Speaker 5: the focus of engagement should really be. Not sort of
[9:53] Speaker 5: is it rational to sell more oil when it's gone
[9:56] Speaker 5: up a lot in price, Well, yes, it probably is rational.
[9:59] Speaker 5: But is it rational to invest in to increase your
[10:03] Speaker 5: own capex and oil and gas when when the IA
[10:06] Speaker 5: is saying saying we're going to reach peak oil sooner
[10:09] Speaker 5: than later, When Sinopeck in China is saying that the
[10:13] Speaker 5: oil or is it maybe it's gas demand in China
[10:16] Speaker 5: is going to reach its peak really quite soon. So
[10:20] Speaker 5: there's a couple of thoughts.
[10:21] Speaker 2: Yeah, it's a very good point that the panel actually
[10:24] Speaker 2: is about what investors should be doing. And I'm going
[10:27] Speaker 2: to pick you up on this run and straight away
[10:30] Speaker 2: after Peter. You're part of the ii gc C. What
[10:34] Speaker 2: can you do what's within your scope to influence high
[10:37] Speaker 2: investors are are influencing, are engaging with the oil and
[10:42] Speaker 2: gas majors.
[10:43] Speaker 5: It's funny, actually think part of our role and we
[10:45] Speaker 5: are a membership body, so what isn't our role is
[10:47] Speaker 5: to tell them what they should be, how they should
[10:50] Speaker 5: be voting, tell them how they should be investing. That
[10:52] Speaker 5: is very much not our job. They offer the fiduciaries,
[10:55] Speaker 5: not us, and they will have different opinions on those questions.
[10:58] Speaker 5: But I think that one of the sort of the
[10:59] Speaker 5: more contextual or atmospheric things that we are working with
[11:03] Speaker 5: our investor members on is again to this question. It's
[11:07] Speaker 5: about don't overreact and don't underreact. So don't overreact and say, oh,
[11:12] Speaker 5: it's all hopeless. No, there is so much to engage
[11:15] Speaker 5: with oil and gas companies on both long term versus
[11:18] Speaker 5: short term non production emissions as well capex in other
[11:25] Speaker 5: parts of the energy sector, in renewable energy, So there's
[11:28] Speaker 5: so much left to engage with oil and gas companies on.
[11:32] Speaker 5: But equally, don't underreact, you know, don't this is this
[11:35] Speaker 5: is a time for This isn't a time for saying, oh, well,
[11:38] Speaker 5: you know oil price has gone up, what can we
[11:41] Speaker 5: do about it? So, yeah, don't underreact and don't overreact.
[11:45] Speaker 2: You would you come in on that the g funds
[11:48] Speaker 2: is an umbrella organization covering multiple different subsectors, so it's
[11:51] Speaker 2: not just banks, investors, it's insurance, it's everyone. How would
[11:55] Speaker 2: you go about engaging with those members?
[11:57] Speaker 1: Yeah?
[11:57] Speaker 6: Sure, so if those aren't familiar with g fans, it's
[12:01] Speaker 6: bringing together essentially of net zero committed financial institutions across
[12:06] Speaker 6: the entire ecosystem as owners that managers, banks, insurers, index providers,
[12:11] Speaker 6: credit warning agencies, and really similarly, we're not there to
[12:17] Speaker 6: tell tell them what to do, but we're there to
[12:19] Speaker 6: kind of support that net zero commitment they've made. And
[12:22] Speaker 6: so I guess the way we're coming at this really
[12:26] Speaker 6: is what is it that you know, one needs to
[12:30] Speaker 6: see to kind of back to Peter's earlier point about
[12:34] Speaker 6: that short term versus long term? What is it that
[12:37] Speaker 6: that that that entire financial ecosystem wants to see from
[12:42] Speaker 6: energy companies, oil and gas majors in terms of that
[12:44] Speaker 6: that that strategy and in particular recognizing that the net
[12:50] Speaker 6: zero transition is a real thing. Ninety percent of governments
[12:54] Speaker 6: have committed to it. Maybe they won't achieve it, maybe
[12:58] Speaker 6: they won't fulfill their ambition on that, but there's a
[13:02] Speaker 6: big societal demand for it, and so therefore it's something
[13:05] Speaker 6: that you know, one needs, one needs a strategy for
[13:08] Speaker 6: and that includes our current kind of energy providers. And
[13:12] Speaker 6: so you know, the what we've done really is to
[13:14] Speaker 6: help provide frameworks, guidance tools that kind of help frame
[13:20] Speaker 6: that that that question I suppose back to the back
[13:22] Speaker 6: to the companies, and so, yes, it is disappointing when
[13:26] Speaker 6: you sort of see the sense of reduction in ambition,
[13:30] Speaker 6: as you say, but I think it's about giving those
[13:35] Speaker 6: different financial institutions the the tools to kind of support
[13:40] Speaker 6: that engagement, to to kind of ask the right questions
[13:42] Speaker 6: about what what that strategy looks like. And I think,
[13:46] Speaker 6: you know, it's only once you've kind of got that
[13:48] Speaker 6: information that you can make a decision as to whether
[13:52] Speaker 6: whether investment or finance or insurance is you know it
[13:58] Speaker 6: is going to be forthcoming.
[13:59] Speaker 2: So engagement seems to be the word of the day
[14:03] Speaker 2: so far on this panel. Anyway, I'm anaga welcome. So
[14:08] Speaker 2: you're a ninety one asset management through various funds, they
[14:11] Speaker 2: are still exposed to probably more than a billion dollars
[14:14] Speaker 2: in total of oil and gas major equity. I'm not
[14:18] Speaker 2: holding you to account for the entire strategy of ninety one,
[14:20] Speaker 2: but would you concare then that engagement is the aim
[14:25] Speaker 2: of the game at the moment and just straight up
[14:27] Speaker 2: divestment is suboptimal.
[14:31] Speaker 7: I think that you have to firstly acknowledge that not
[14:35] Speaker 7: all oil and gas is created equal. I think if
[14:38] Speaker 7: you walk into this debate and you assume that all
[14:41] Speaker 7: companies are on the same trajectory, you are going to,
[14:44] Speaker 7: you know, put your feet in hot water. And I
[14:46] Speaker 7: think Peter kind of touched on that with you know,
[14:49] Speaker 7: the shells and bps of this world versus some of
[14:51] Speaker 7: the US majors where they are almost worlds apart, and
[14:58] Speaker 7: understanding the nuance of that and understanding what that means
[15:03] Speaker 7: for the short, medium and long term both from you know,
[15:07] Speaker 7: the revenue they're going to generate, what the alpha that
[15:10] Speaker 7: you can potentially generate, and the transition risk of those
[15:13] Speaker 7: companies is super super important. We are at ninety one
[15:19] Speaker 7: or a firm that you know, we committed to net zero.
[15:22] Speaker 7: We're a signature BIO GCC, we're part of g fans,
[15:26] Speaker 7: we have fifty eight percent of our assets and emerging markets.
[15:31] Speaker 7: That is important because a lot of what we discuss
[15:35] Speaker 7: here comes from the view of developed markets. But once
[15:38] Speaker 7: you get into the detail of disclosure, of target setting,
[15:43] Speaker 7: of setting robust strategies, of the whole concept of the
[15:48] Speaker 7: energy transition, the argument becomes very different when you look
[15:51] Speaker 7: at it from emerging market context.
[15:53] Speaker 4: So we have developed a view, a set.
[15:57] Speaker 7: Of tools and approach view on engagement that is very
[16:03] Speaker 7: I think, roll up your sleeves, get your hands dirty,
[16:05] Speaker 7: don't be scared, to get stuck in. And the reason
[16:09] Speaker 7: why I say that is because divestment would be the
[16:14] Speaker 7: optimal outcome if you're setting poor photio decarbonization targets, and
[16:18] Speaker 7: if I didn't want to be up on the stage
[16:20] Speaker 7: just talking about this subject. But what we know is
[16:24] Speaker 7: that that doesn't achieve the objective of real world decarbonization. Now,
[16:28] Speaker 7: the question then remains, what does you can only achieve
[16:34] Speaker 7: the outcome of transitioning these big, big oil tankers by
[16:38] Speaker 7: having meaningful conversations, conversations that are that are informed by
[16:44] Speaker 7: the frameworks that the likes of the IGCC, the guidance
[16:48] Speaker 7: of the likes of g funds. Those are the types
[16:51] Speaker 7: of institutions and guidelines that inform asset managers like us
[16:56] Speaker 7: to sit at the wardroom table with the chair of
[17:00] Speaker 7: Shell and have a meaningful conversation about their scope three
[17:03] Speaker 7: target because we have to be very clear about what
[17:06] Speaker 7: we're asking for and the implications of that, and they,
[17:10] Speaker 7: you know, when they're talking to their shareholder, have to
[17:13] Speaker 7: be very clear on what is the unintended consequence or
[17:16] Speaker 7: the intended consequence if they follow suit?
[17:20] Speaker 2: Could divestn't be a buck stop part of last call?
[17:24] Speaker 2: Should your engagement efforts not work?
[17:27] Speaker 4: Absolutely?
[17:27] Speaker 7: And I think but the point there is the timeline
[17:33] Speaker 7: on that.
[17:33] Speaker 2: What does success look like for for engagement?
[17:35] Speaker 7: Do so the way that we are sort of very
[17:41] Speaker 7: you know, we've got our own tool kit. It's a
[17:43] Speaker 7: we've got a proprietary sort of framework that we use
[17:46] Speaker 7: to assess all of our companies, specifically our oil and
[17:49] Speaker 7: gas majors, and the framework allows us to unpick the
[17:52] Speaker 7: detail of.
[17:52] Speaker 4: These companies transition plans.
[17:54] Speaker 7: Down to how much opics and cathics are being spent
[17:58] Speaker 7: on transition related at or, for instance, methane measurement. That
[18:04] Speaker 7: is important because it helps you understand the integrity of
[18:06] Speaker 7: the transition plan. Now, the output of that tool informs
[18:10] Speaker 7: our engagement. So imagine it's red ambergreen across fifty indicators.
[18:15] Speaker 7: Red is obviously this is what we need to engage
[18:17] Speaker 7: the company on. You then look at that, you lay
[18:21] Speaker 7: out your red flags, and you say, what is achievable
[18:24] Speaker 7: in one year, three years, five years, and ten years,
[18:28] Speaker 7: assuming that you're going to be a shareholder for that
[18:30] Speaker 7: long and if those milestones are not met, what is
[18:35] Speaker 7: the escalation policy in some In some instances, yes, it's
[18:40] Speaker 7: going to be divestment. Is that is a scope? Through
[18:43] Speaker 7: setting a scope through target enough to divest? I would argue, no.
[18:48] Speaker 2: Tina, we hear about engagement, and quite often most people
[18:52] Speaker 2: would associate that with equity holdings. But banks are vital
[18:56] Speaker 2: when it comes to the flu of capital into these
[18:58] Speaker 2: companies as well. So I believe you're more of the
[19:03] Speaker 2: opinion that engagement is also more worthy of a strategy
[19:08] Speaker 2: than than divestments. So how can a banker? Can a
[19:10] Speaker 2: lender go about that when they don't have the voting
[19:13] Speaker 2: powers of an equity holder?
[19:16] Speaker 3: I mean we work with We work with companies because
[19:20] Speaker 3: we think it's better to do the transition together. So
[19:24] Speaker 3: rather than throwing companies out of our portfolio from the start,
[19:29] Speaker 3: we rather set together and work set up a set
[19:34] Speaker 3: of a strategy that actually the company could reach their
[19:38] Speaker 3: one point five target for example, and of course for
[19:43] Speaker 3: us we will start based on the asset management, but
[19:46] Speaker 3: also on the lending side, we have our own strategy.
[19:51] Speaker 3: If we want to reach one point five degrees in
[19:55] Speaker 3: twenty fifty. Of course our clients have to do the same,
[19:58] Speaker 3: so we need to work with them if actually going
[20:00] Speaker 3: to follow up on our own goals. But we also
[20:03] Speaker 3: think that if you really want to cut emissions, it
[20:07] Speaker 3: doesn't help that much to throw them out of the portfolio,
[20:10] Speaker 3: but rather to push for a change. And we think
[20:13] Speaker 3: that the change is coming much or come is better
[20:17] Speaker 3: to drive through by working together. We need to do
[20:21] Speaker 3: the same thing.
[20:22] Speaker 4: It's hard to do it and we don't.
[20:24] Speaker 3: Know how to do it, but we think working together
[20:27] Speaker 3: with the clients we could do it together, find a
[20:29] Speaker 3: way together. So I think that is the most important
[20:33] Speaker 3: for us.
[20:35] Speaker 2: Yeah, Peter used the word hope, and we shouldn't give
[20:38] Speaker 2: up hope. On these companies just yet, as this is
[20:41] Speaker 2: an open question to anyone. But I'll give it back
[20:43] Speaker 2: to you, Peter, because you mentioned it is the hope
[20:46] Speaker 2: that you can turn every BP shell out on into
[20:49] Speaker 2: an Horsted and get them to completely transition or is
[20:53] Speaker 2: that slightly hopeful.
[20:58] Speaker 5: It might be unrealistic in the medium term. Let's say,
[21:01] Speaker 5: I think you know it is something that it is
[21:03] Speaker 5: an investor's job is to distinguish between different companies. You know,
[21:07] Speaker 5: that is that is at the heart of what traditional
[21:10] Speaker 5: stock picking investing is about. So it's making those distinctions
[21:12] Speaker 5: within a sector between let's say, a particular North American
[21:18] Speaker 5: oil and gas major and a different company that is
[21:22] Speaker 5: perhaps not perfect, but which is better than the other one.
[21:25] Speaker 5: But just just to pick up on one of the
[21:27] Speaker 5: things that Tina and yourself Ryan were talking about is
[21:30] Speaker 5: the other channels like bank banking for example, that when
[21:34] Speaker 5: you engage if you want to engage with a sector,
[21:36] Speaker 5: you can't you can engage with it both directly with
[21:38] Speaker 5: companies in that sector, or indeed you can engage with
[21:42] Speaker 5: the facilitators of financing to that sector, in particular banks,
[21:47] Speaker 5: but for that matter, also also insurers. And it's i
[21:50] Speaker 5: think it's quite an interesting growth area for engagement, and
[21:55] Speaker 5: there is I think, and anybody can disagree with this
[21:59] Speaker 5: or give ever the contrary. I think there's relatively little evidence,
[22:03] Speaker 5: or relatively there is little evidence full stop of divestment
[22:07] Speaker 5: achieving change with companies. However, I think there is a
[22:10] Speaker 5: very interesting alternative route is through banking or and d
[22:13] Speaker 5: through insurance that banks and insurers may have much more
[22:17] Speaker 5: leverage with the companies that they lend to the where
[22:21] Speaker 5: they facilitate financing or indeed they provide insurance than public
[22:25] Speaker 5: equities investors do directly.
[22:28] Speaker 2: We're going to take the other side of that, and
[22:29] Speaker 2: I want to see if anyone wants to take the
[22:30] Speaker 2: devil's advocate argument here that we're talking about financial institutions
[22:34] Speaker 2: as they necessarily want to drive change and that might
[22:38] Speaker 2: not be true. Is there an argument to say divestment
[22:42] Speaker 2: might be the financially sensible things if this industry is
[22:46] Speaker 2: poorly ready for the energy transition over the long.
[22:49] Speaker 3: Term, and would you be.
[22:52] Speaker 2: Responsible fiduciary to the best I.
[22:56] Speaker 6: Mean, yeah, at some point I suppose maybe is to
[22:58] Speaker 6: kind of echo bit what Anik has said and just
[23:01] Speaker 6: drawing on that. If we do think we are going
[23:05] Speaker 6: to come over the other side of the demand curve
[23:07] Speaker 6: at some point. For these fossil fuels, it does become
[23:10] Speaker 6: a question about, well, who are the winners and losers
[23:13] Speaker 6: in that space? Is it those that can get the
[23:16] Speaker 6: stuff out of the ground the cheapest or with the
[23:18] Speaker 6: lowest emissions intensity, or because they're based in geopolitically more
[23:24] Speaker 6: friendly locations, And it's all these things that I guess,
[23:30] Speaker 6: you know, financial institution is taken into account when they're thinking,
[23:32] Speaker 6: I want to lend money either perpetually for equity or
[23:36] Speaker 6: just on a one year contract for insurance into these
[23:41] Speaker 6: into these into these spaces, and so that that might
[23:45] Speaker 6: kind of, you know, alter your portfolio mix. I suppose
[23:50] Speaker 6: over time as you do that.
[23:51] Speaker 2: Just to dwell on insurance for a second, and I
[23:53] Speaker 2: knew you have thoughts about the insurance industry, particularly in
[23:56] Speaker 2: America where they're regulated up to level and like, are
[24:01] Speaker 2: some of these groups sort of hamstrung on what they're
[24:03] Speaker 2: actually able to do? And we talk about the difference
[24:06] Speaker 2: financial institutions are going to make. I mean, it's not
[24:09] Speaker 2: entirely within their remit to drive the change that we
[24:13] Speaker 2: want to see, or in totality anywhere.
[24:15] Speaker 6: Yeah, I mean, to Peter's point, insurance can be incredibly
[24:18] Speaker 6: powerful because everyone needs it to operate, whether that's directors
[24:21] Speaker 6: of a company to protect their liability versus you know,
[24:25] Speaker 6: everything down to the properties and so forth. I think
[24:28] Speaker 6: one of the interesting dynamics in that sector is that
[24:34] Speaker 6: you end up with different bits of the business kind
[24:36] Speaker 6: of interacting here. So if I'm ensuring stuff that is
[24:41] Speaker 6: facilitating a missive activity, am I this causing disruption to
[24:48] Speaker 6: my property business because they're going to be more exposed
[24:50] Speaker 6: to extreme weather events going forward. Now at the company level,
[24:54] Speaker 6: you might think, well, look, I can't really do anything
[24:57] Speaker 6: about that if the rest of the world isn't getting
[24:58] Speaker 6: on board with dealing with climate change. And so that's
[25:01] Speaker 6: why it's a collective action problem here. But you know,
[25:05] Speaker 6: if there is a collective action amongst insurers to to
[25:09] Speaker 6: to recognize that that sort of business strategy risk I
[25:13] Speaker 6: suppose from working with one bit of business not not
[25:17] Speaker 6: recognizing another, then they could be creating risks risks for themselves.
[25:22] Speaker 6: And so again it sort of points back to this
[25:24] Speaker 6: need for then to ask companies to lay out what
[25:29] Speaker 6: the strategy is for for for transition and including you know,
[25:33] Speaker 6: the the implications of that for the risks that you
[25:36] Speaker 6: need insuring in those businesses, and including in fact liability
[25:41] Speaker 6: or listigation type type liability risks that that are seeming
[25:45] Speaker 6: to be emerging ever more as well. So it's it's
[25:49] Speaker 6: a very complex picture in insurance. But I think it's
[25:51] Speaker 6: going to be really interesting.
[25:52] Speaker 2: Yeah, I mean, I think you're nodding away there. Do
[25:55] Speaker 2: you do you want to come in on that and
[25:57] Speaker 2: maybe speak a little bit about you know, it is
[25:58] Speaker 2: maybe one perhaps constry and anything that it's able to do.
[26:01] Speaker 2: I know, nearly sixty percent use of your AAM is
[26:05] Speaker 2: emergent markets.
[26:07] Speaker 4: So I'm going to touch on two things.
[26:08] Speaker 7: One was what you just the sort of challenge of divestment,
[26:12] Speaker 7: and I think what we have to remember often when
[26:15] Speaker 7: we have these conversations, there's an echo chamber, right Like,
[26:18] Speaker 7: no one's standing up throwing eggs at us, because you know,
[26:22] Speaker 7: there's it's it's we're all we all believe in doing
[26:26] Speaker 7: the right thing. The question is how now there are
[26:29] Speaker 7: a lot of rooms where people are having conversations that
[26:31] Speaker 7: don't believe in doing what we're talking about. And it's
[26:36] Speaker 7: very interesting as an asset manager to have a range
[26:38] Speaker 7: of clients, some who are ruthless about net zero and
[26:43] Speaker 7: some who see net zero on your website and want
[26:46] Speaker 7: to take you to task on it. And navigating that
[26:49] Speaker 7: space and that complexity is very interesting because ultimately the
[26:54] Speaker 7: conversation that you have with certain clients, for instance in
[26:58] Speaker 7: the States, who if you're answering an RFP and they
[27:04] Speaker 7: say are you committed to net SERA or have any
[27:06] Speaker 7: kind of climate process in your investment process or your
[27:09] Speaker 7: fundamental analysis, and you say yes, you're out of the game,
[27:13] Speaker 7: or they penalize you, okay.
[27:14] Speaker 4: So that's the reality.
[27:16] Speaker 7: The way you have to approach and articulate that conversation
[27:20] Speaker 7: is around the commercial viability of green and of the transition.
[27:24] Speaker 7: It's not about climate, it's not about doing the right thing.
[27:28] Speaker 7: It's about what is in the short, medium and long
[27:31] Speaker 7: term the most commercially viable opportunity for the sector for
[27:36] Speaker 7: this company. And it is a very similar conversation to
[27:40] Speaker 7: the companies and the clients that we have in emerging markets.
[27:44] Speaker 7: You speak to a Nigerian private equity player, they are
[27:48] Speaker 7: not talking about Africa needs to decarbonize. They are talking
[27:52] Speaker 7: about energy security, where the transition meets energy security is
[27:57] Speaker 7: where this all becomes a very easy the conversation because
[28:01] Speaker 7: there's no trade off, and I think keeping that in
[28:05] Speaker 7: mind in terms of how the narrative develops, you don't
[28:07] Speaker 7: want to buy furiicate this because then we've got two rooms.
[28:10] Speaker 7: We want to be in one room talking about the
[28:12] Speaker 7: same thing, which is allocating capital to the transition in
[28:17] Speaker 7: a way that generates you know, generates ALFA.
[28:20] Speaker 4: Our pensioners can earn their pension.
[28:24] Speaker 7: Everybody, everybody's happy.
[28:28] Speaker 4: But you're not leaving people out of the room.
[28:31] Speaker 2: Very good, I'm very I'm cognizant. One final question to you,
[28:35] Speaker 2: to you know, is there like is there a concern
[28:38] Speaker 2: about maturity as much if you have a loan that
[28:41] Speaker 2: has a five year five year tenor is that still
[28:44] Speaker 2: viable for the oil and gas industry? Are they still
[28:47] Speaker 2: credit worthy to pay back their loans nefts? So is
[28:50] Speaker 2: it not something that a buying wants to engage with
[28:52] Speaker 2: they want to provide that credit to the oil and
[28:55] Speaker 2: gus just because it's it's economically viable and it's just
[28:58] Speaker 2: mentioned commercial viability.
[29:02] Speaker 3: I guess that's the whole point. That depends on what
[29:05] Speaker 3: kind of company it is. Where it's having their operations,
[29:09] Speaker 3: for example, because if you want to go into somewhere
[29:12] Speaker 3: which is long term project or very difficult to get
[29:19] Speaker 3: the energy out in the market, that would of course
[29:22] Speaker 3: have higher risk. So is this you know, tuning in
[29:25] Speaker 3: how is the risk and how is the opportunity in this,
[29:28] Speaker 3: and that of course will have an impact on risk
[29:30] Speaker 3: premium and also either of the risk premium also the
[29:34] Speaker 3: length of how much capital you will get for the future,
[29:38] Speaker 3: So of course it has an impact. And that's changed
[29:41] Speaker 3: as well for the last ten years. It's more difficult
[29:45] Speaker 3: now for an oil and gas company to get the
[29:48] Speaker 3: loan or credit which lasts for a long time a
[29:51] Speaker 3: period of time, and especially if you don't have a plan,
[29:54] Speaker 3: and that's in Europe of course, if you don't have
[29:57] Speaker 3: a plan for how you will see the energy transition.
[30:00] Speaker 3: So I think more openness, more transparency in how you're
[30:04] Speaker 3: working within this area with the changes that's going on
[30:08] Speaker 3: in the microeconomy, and openness about that that will have
[30:12] Speaker 3: an impact on the valuation, on the risk and of
[30:15] Speaker 3: course the access to capital.
[30:17] Speaker 2: Wonderful. Could you please all show your appreciation for the
[30:22] Speaker 2: panelists they've.
[30:23] Speaker 1: Been Bloomberg n EF is a service provided by Bloomberg
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