Portfolio Adviser • Portfolio Adviser Magazine December 2021 • Controversial stance on oil gains support

● Schroders’ Mark Lacey’s claim that oil firms are part of the energy transition solution has prompted debate

● Many believe boycotting oil, instead of working for change with those companies, will have a negative eect

Integrated oil companies are part of the solution to reducing carbon emissions and not part of the problem, according to certain industry participants.

Speaking to delegates at the Schroders Investment Conference in Edinburgh last month, Schroders’ Mark Lacey said the industry needed to address the fact that more than half (54%) of global carbon emissions comes from the transport and power generation sectors.

Lacey manages the £418m Schroder ISF Global Energy Transition Fund, which invests in companies associated with the transition towards lower- carbon sources of energy.

He also co-manages the Schroder ISF Global Energy Fund, which holds traditional integrated oil companies that are making the transition to clean energy.

A number of large oil companies, including BP, Royal Dutch Shell and Total, have vowed to be net zero by 2050 or sooner. But according to the Carbon Disclosure Project, oil and gas companies account for more than half of global greenhouse gas emissions associated with energy consumption.

Lacey said to meet global carbon emissions targets, renewables need to go from 20% of the world’s power generation mix to 85% by 2050, as per the International Renewable Energy Agency’s ‘Roadmap to 2050’.

He said capital expenditure for the energy transition theme is set to accelerate to as much as $120trn (£90.05trn), creating opportunities across the value chain.

According to Lacey, contrary to popular opinion, integrated oil companies are part of the energy transition solution, not part of the problem. He pointed to their use of gas as a transition fuel, noting how floods in China’s key mining region in June resulted in a shortage of coal, with energy demand being met by spare capacity in the combined gas turbine market.

According to the International Energy Agency, between 2010 and 2019, coal-togas switching saved around 500m tonnes of carbon dioxide, equivalent to putting an extra 200m electric vehicles on the road over the same period.

Lacey said the key is to distinguish between companies that are changing and providing the services for that change, versus those that produce oil fields and high methane emissions. “We would never invest in that sort of company,” he said.

Lacey’s comments echoed those of Blackrock chief executive Larry Fink, who told COP26: “If we are not working with the hydrocarbon companies together, we will never get to net-zero.”

Shard Capital head of research Ernst Knacke agreed that big oil has to be a part of the climate change solution. “You can’t just say, ‘I’m not going to give BP capital because they are a part of the problem’,” he said. “If they are part of the problem, you need to get them to fix it.”

Knacke flagged the Trium ESG Emissions Impact Fund to play the transition to net zero. The fund is an equity market neutral strategy, that aims to engage with high-emitting companies to implement lower CO2 emissions, and shorting those that are not moving in the right direction. “It’s not an activist proposition, but it is almost that,” said Knacke.

Lacey also highlighted oil firms’ role in the move to hydrogen, saying they already have the infrastructure to help facilitate the decarbonisation of industry practices such as cement production.

IN NUMBERS

Source: US Environmental Protection Agency, International Energy Agency, Schroders

PRODUCT NEWS

● Quilter Cheviot has launched eight funds for use as building blocks in its model portfolio service (MPS). The range, managed by Quilter Cheviot head of MPS Simon Doherty and deputy head of MPS Antony Webb (pictured), includes two fixed interest, four equity (North America, UK, Europe, Asia and emerging markets) and two alternatives funds.

● Interactive Investor has placed the CFP SDL UK Buettology, Crux European Special Situations and Lindsell Train Japanese Equity funds under review ahead of its annual review of the ii Super 60 funds list.

● St James’s Place has swapped out Blackrock, JO Hambro, Edgepoint and Sands Capital on its global equity mandate. From 22 November, the £14bn fund will target a lower carbon footprint that will be half that of its benchmark at launch. State Street Global Advisors, Man Numeric and LA Capital were appointed to the equally weighted mandate.

● Robo adviser Moneyfarm is branching out in the UK B2B space by launching a digital wealth service designed to help advisers address clients with smaller pots by providing low-cost advice and portfolio management to less auent customers of IFAs, banks and building societies.

● Gresham House Strategic is to be wound up after several months of dispute between the trust’s board and its recently sacked manager. It comes after a strategic review by the board broke down due to the former portfolio manager, Gresham House, gaining the support of almost half the trust’s shareholders calling for the portfolio to be liquidated.