Here’s How ESG Investing Has Disrupted the Oil Industry

It has kept many companies from investing in fossil fuels.

It has kept many companies from investing in fossil fuels.

The Environmental, Social, and Governance movement has shaken up the oil industry over the past 10 years. In this segment of “Backstage Pass” on Motley Fool Live, recorded on March 15, contributors Jason Hall and Travis Hoium discuss the recent effects of ESG and what it means for oil in the next few years.

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Jason Hall: I’m a little bit of two minds here. I think one thing we should acknowledge is that the ESG movement provided a lot of PR coverage for banks, for large investors, private equity hedge funds, anything to de-risk and to move away from this sector. You take those losses and just move on because of the very real environmental harm. But it’s pretty easy.

It’s just been covered, but a lot of them have made very clear commitments, to not invest in the fossil fuel industries. That means that there is just a very large pool of capital that 10 years ago would have absolutely been investing in this period that is not. What I don’t know is how much capital is still out there that will. We haven’t seen that appetite yet.

Travis Hoium: You’re saying somebody’s going to take the opportunity, even if there is a lot of investors that are saying, “We won’t invest.”

Hall: Absolutely they will. I think looking at Berkshire Hathaway ( BRK.A 1.04% ) ( BRK.B 0.92% ) is a good example. This is a company that took advantage of the opportunity in the logistics area midstream, to buy some good assets at really attractive prices not on the production side. But this is also a company that is trying to build some of the largest renewable energy assets in the world at the same time.

I think there are a lot of companies that are in that middle ground that acknowledged the realities of the impact of triple-digit oil. Not just on the West, the developed world, but also how much that affects, in a very meaningful way, marginalized communities that don’t have access to energy at all. It’s not just one or the other.

ESG is more than just taking carbon out of the atmosphere, it’s about making a stronger world. I think there’s a lot of pragmatic companies in the middle. I just don’t know what that scale is. It’s to me, what it gets back to is it gets back to whatever happens over the next few months or the next year or two. This is a deep hole to dig out of.

I think we could be dealing with potentially higher energy prices for a protracted period of time, whatever the industry looks like in 20 years, I think the next 3-5 years, definitely the next couple of years. I think, what we see is it’s going to be volatile as hell. That’s going to continue. But I don’t think we’re going back to $60 oil anytime soon.

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