Feature


Time is not on the side of governments who have pledged to decarbonise their economy. There are less than 30 years left to achieve the 2050 target of cutting carbon levels to net zero and for countries like the US, the UK and Japan that timescale is becoming more and more challenging.


Switching the global economy from extractive to regenerative energy means finding secure and reliable alternatives to burn- ing oil and gas. So far, making such a breakthrough has proved difficult. Energy bills for homes, businesses and motorists have rocketed since the second half of last year. Increasing demand has hit the supply of traditional energy sources, such as gas, while modern, cleaner technologies like windfarms were the victim of there not being “enough wind” in the North Sea. Shifting the world onto electrically powered vehicles will only push demand higher, and that is without get- ting into building the charging infrastructure needed to sup- port the motoring revolution.


Oil and gas have powered the world for more than 100 years. It is deeply embedded within the infrastructure of communities and has made parts of the world extremely prosperous. Changing this is not easy – and the challenge is not limited to finding alternative sources of energy. Millions of people’s liveli- hoods are directly connected to oil and gas and the industries they support. If governments work to replace fossil fuels with cleaner alternatives, they could be creating poverty. Take the mil- lions of people working in the mining industry in Indonesia.


If the mines are closed, what happens to the workers? ESG-led investing is not just about protecting the environment for future generations. There is also a social element in the strategy, so putting lots of people out of work and, therefore, decimating communities to fix environmental concerns is a conflict within the ethos of sustainable investing. People living in a world of lower temperatures and free from extreme weather patterns is not a trade-off for living in poverty. So, governments and investors are being encouraged to ensure that we have a just transition from fossil fuels to regenerative sources of energy so that no one is left behind as we move towards a sustainable future.


We know that it is important, and that there are deep social and economic impacts to consider but knowing what a good transition looks like is tricky.


Therese Niklasson, Newton Investment Management Step one


The desire among asset owners to pursue a just transition is gaining momentum, it is being mentioned more and more in conversations with their asset managers, says Therese Niklas- son, global head of sustainable investment at Newton Invest- ment Management. “We are still at the starting point where we are discussing a company’s commitment to its transition plan. You have to weave in a just transition at the outset when you


24 October 2022 portfolio institutional roundtable: Responsible investing


Global impact Yet this does not just affect people working directly in the oil and gas supply chain. Every industry will have to adopt to some form of change brought about by the transition. “There is almost no part of the global economy that is going to be unaffected by the energy transition,” says Nick Stansbury, head of climate solu- tions at Legal & General Investment Management (LGIM). It is not just that the fossil fuel industry will see demand for its products fall. Everywhere, from financial services to consumer goods, to food retailing, to the restaurant industry, to petro- chemicals, every place in the global economy will, in some way, be affected and affected significantly. “It is more than thinking about the implications for the oil and gas industry,” he adds. “We use energy in every part of the global economy. Everything we do is affected by energy. Therefore, big changes in the way we deliver energy to the global economy will impact all parts of our portfolios.” Constructing portfolios with the impact of the energy transi- tion not limited to one industry appears to be a common strat- egy


among investors. “The global ecosystem is so


interconnected, not just in nature but in how it intertwines with the economy, so doing one thing in isolation would be futile,” says Gabrielle Kinder, an environmental analyst at BNP Paribas Asset Management.


“The energy transition theme is one of social justice not just environmental justice,” she adds. “By halting climate change there is a lot of climate change inequality around the world which would be abated.”


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