ESG: We need to do more than eliminate oil

Too many asset managers focus solely on the carbon intensity of their portfolio, without thinking about how they can support energy transition investments by supporting companies that have a solid carbon reduction plan, says Thierry Roncalli.

“What is unfortunate is that we forget this part, the transition,” he complained in an interview after the presentation. Institutional investors need to realize that this part is very important. »

By remaining a shareholder, an institutional investor can continue a “dialogue” with companies to transform them, he added. “There is a lot of communication in Europe with institutional investors who say they no longer have a connection with BP and Total. Okay, but now you have no control over them. »

This discussion in the main areas of investment between accompanists and those who are in favor of exceptions has a special resonance in Canada, where the oil sector accounts for almost 10% of the Canadian economy.

The National Bank, for example, has decided to support its customers in the oil and gas sector to help them reduce their carbon footprint. The financial institution of Montreal wants its efforts to reduce the carbon intensity of its loans to the oil and gas sector by 31% by 2030 compared to the control year 2019.

At the Caisse de dépôt et placement du Québec (CDPQ), we decided instead to sell investments in the oil sector by the end of 2022. However, the institutional fund decided to support other industrial sectors. Agriculture. $ 10 billion is earmarked for this.

The need for capital

The investment needed to achieve carbon neutrality in 2050 is enormous, the speaker said. According to a report from the Smith School of Business at Queens University in Ontario, Canada alone needs nearly $ 128 billion a year to reduce carbon emissions by 30% by 2030. This is almost 6.4% of Canada’s GDP.

According to McKinsey, globally, from 2021 to 2025, about $ 9.2 trillion a year is needed to achieve carbon neutrality. This is 4.1% of GDP or the equivalent of half of corporate profits worldwide.

Judge Thierry Roncalli, these figures should be seen not only as the cost of combating global warming, but also as an investment opportunity. “Tomorrow’s investment is growth. If we invest a lot in green solutions, we may have a green planet. »

Difficult task

In a presentation filled with calculations and charts, Mr. Roncalli demonstrated the complexity of the decisions to be made by asset managers who want to invest in the decarbonisation of the economy.

A limited number of listed companies receive green income. In the United States, for example, only 6.17% of the revenue earned by companies in the US MSCI index is “green.” Of all this income, 30% comes from the manufacturer of electric vehicles Tesla. For this reason, it becomes impossible to reduce the carbon footprint beyond a certain threshold without significantly reducing portfolio diversification.

The investor must also find ways to take into account various conflicting factors. For example, carbon companies may also have great potential for green income in the future.

Thierry Roncalli cites the example of two car manufacturers: Tesla and Toyota. Tesla gets all its revenue from the sale of electric vehicles, but Toyota is on track to significantly reduce the carbon intensity of its activities. “Am I ignoring companies looking for green solutions for the future by shutting down more carbon companies?” »