Like defense, Goldman says ESG investors should bring oil and gas stocks in from the cold

Like defense, Goldman says ESG investors should bring oil and gas stocks in from the cold


An oil pumpjack is seen in a field on April 08, 2025 in Nolan, Texas.

Brandon Bell | Getty Images News | Getty Images

Just as many mission-driven fund managers have reconsidered their defense policy in the wake of Russia’s full-scale invasion of Ukraine, an analyst at Goldman Sachs says it is now time for sustainable investors to re-evaluate their approach to oil and gas companies.

It comes at a time when European energy majors have slashed renewable spending and doubled down on fossil fuels in an effort to boost near-term shareholder returns.

Investments focused on environmental, social and governance (ESG) factors tend to favor companies that score highly on certain criteria, such as climate change, human rights or corporate transparency.

Tobacco giants, fossil fuel companies and weapons makers have typically been among those to have been screened out or excluded from sustainable portfolios.

“In the same way that the sentiment on defense companies has changed with the Russia-Ukraine war, I think the sentiment on ownership of oil and gas should change,” Michele Della Vigna, head of EMEA natural resources research at Goldman Sachs, told CNBC by video call.

A persistent unwillingness to own energy majors is biased by a “major mistake” in evaluating the energy transition from the perspective of European investors, Della Vigna said — an approach that he expects to change.

We see record-breaking temperatures, rising greenhouse gas emissions, oceans warming and sea level rise. I mean, why would we want to see more fossil fuels? Most ESG investors would not.

Ida Kassa Johannesen

Head of commercial ESG at Saxo Bank

Goldman’s Della Vigna outlined three reasons to back-up his view on why ESG investors should bring oil and gas stocks in from the cold.

“Let’s be clear, this energy transition will be much longer than expected. We are going to have, we think, peak oil demand in the mid-2030s [and] peak gas demand in the 2050s,” Della Vigna said.

“And we clearly show that we need greenfield oil and gas development well into the 2040s. So, if we need new oil and gas development, why wouldn’t we own these companies?”

The International Energy Agency, meanwhile, has said it expects fossil fuel demand to peak by the end of the decade. The energy watchdog has also repeatedly warned that no new oil and gas projects are needed to meet global energy demand while achieving net-zero emissions by 2050.

Della Vigna’s second point was that oil and gas companies represent some of the biggest investors in low-carbon energy worldwide, adding that a failure to both engage with, and finance oil and gas stocks would ultimately serve as a barrier to the energy transition.

In addition, Della Vigna said that unlike utilities, which he described as infrastructure builders, oil and gas companies are “market makers” and “risk-takers.”

An array of solar panels create electricity at the Lightsource bp solar farm near the Anglesey village of Rhosgoch, on May 10, 2024 in Wales.

Christopher Furlong | Getty Images News | Getty Images

“So, we need their capabilities, the balance sheet and the risk-taking. They are some of the largest investors in low carbon and whether we like it or not, we also need their core businesses of oil and gas,” Della Vigna said.

“Otherwise, we will not have affordable energy, especially for emerging markets, and we will have energy poverty, which I don’t think is acceptable in any ESG framework,” he continued.

“I think the energy companies that lead the energy transition should be a cornerstone of ESG funds — not a divestment target,” Della Vigna said.

‘Some loosening around the edges’

Not everyone is convinced that oil and gas stocks should follow defense companies into an ESG portfolio.

“I think it is a bit extreme,” Ida Kassa Johannesen, head of commercial ESG at Saxo Bank, told CNBC by video call.

“Just because defense stocks have gained favor doesn’t mean that oil and gas should also gain favor. I don’t think we should compare the two directly,” Kassa Johannesen said.

“We can see the negative impacts of oil and gas. The current climate situation is not good. We see record-breaking temperatures, rising greenhouse gas emissions, oceans warming and sea level rise. I mean, why would we want to see more fossil fuels? Most ESG investors would not,” she added.

Scientists have repeatedly pushed for rapid reductions in greenhouse gas emissions to stop global average temperatures rising. These calls have continued through an alarming run of temperature records, with the planet registering its hottest year in human history in 2024.

Extreme temperatures are fueled by the climate crisis, the chief driver of which is the burning of fossil fuels.

Allen Good, a senior stock analyst covering the oil and gas industries at Morningstar, said it’s difficult to foresee a time where there will be a total acceptance of oil and gas in ESG.

He added, however, that a slightly more relaxed approach from investors is feasible on the basis that energy majors significantly increase the amount they invest in renewable and low-carbon technologies.

An Exxon gas station is seen on August 05, 2024 in Austin, Texas. 

Brandon Bell | Getty Images

“I mean ESG, to me, it’s whole raison d’être is the energy transition [and] climate change. So, I would find it hard to believe that they would say they are going to start investing in oil and gas companies,” Good told CNBC by telephone.

“Now, I think what you could start to see is some loosening around the edges, whereby they come to some agreement where a company is investing X amount in renewable energy, or their earnings will be X amount in 10 years, then maybe a Total[Energies] gets into the portfolio. But someone like an Exxon or even a Chevron … I would find that hard to see how that gets in ESG,” he added.



Source

Warren Buffett just told CNBC his plan for trains. The stocks are moving
World

Warren Buffett just told CNBC his plan for trains. The stocks are moving

Warren Buffett is not in the market to buy another railroad but he met with the CEO of CSX earlier this month and discussed cooperation to make freight rail more efficient, he told CNBC’s Becky Quick on Monday. Berkshire Hathaway Chairman Buffett and CEO-designate Greg Abel met with CSX CEO Joseph Hinrichs in Omaha, Nebraska, […]

Read More
Santoli’s Monday market wrap-up: Stocks regroup after ‘risk-on’ rally
World

Santoli’s Monday market wrap-up: Stocks regroup after ‘risk-on’ rally

(These are the market notes on today’s action by Mike Santoli, CNBC’s Senior Markets Commentator. See today’s video update from Mike above.) Stocks regroup after Friday’s broad and emphatic “risk-on” rally, responding to the increased likelihood that the Federal Reserve will resume cutting interest rates next month into a still-steady economy with equity indexes near […]

Read More
What the strong ‘KPop Demon Hunters’ box-office showing means for Netflix stock
World

What the strong ‘KPop Demon Hunters’ box-office showing means for Netflix stock

The success of a movie about K-pop performers fighting supernatural enemies has Wall Street wondering if Netflix has found its next big franchise. A limited theatrical run of “KPop Demon Hunters” this weekend appears to have led the box office with $16 million to $18 million in sales, according to The Associated Press , who […]

Read More