ESG Insights: Trends, Analysis & Our Featured Chart #10

A dramatic aerial photograph of a wildfire spreading through woodland. The left side of the image has a teal graphic overlay with the text 'Parmenion Investment Management' and a logo labeled 'ESG Insights.' The logo consists of a magnifying glass with the letters 'ESG' inside it.
For financial professionals only

In this week’s insights we cover falling ESG fund-fees and calls for a delay in SDR implementation. We also look at stranded-asset risk in real estate, wildfires threatening utility providers and rising legal action on climate change.

The key takeaways:

  • Fees for ESG funds fall below mainstream-competitors – Morningstar research shows European ESG fund fees have fallen faster than their non-ESG peers, with average costs now lower across a range of areas.

  • PIMFA calls for year-long SDR delay – highlighting that smaller firms may struggle to be ready in time for the new regulations around portfolio management, given their complexity.  For more insight on SDR and how it'll impact advisers, watch our recent webinar with Julia Dreblow from our Ethical Oversight Committee.

  • Real estate managers warn of stranded asset risk – many European fund managers feel their energy-inefficient commercial properties have become stranded, as they face high interest rates and falling values owing to increased regulation and lack of demand.

  • Wildfires are making utilities uninsurable – some electricity providers in the US are being forced to operate without insurance due to the increasing risk of wildfires.

  • Climate legislation increases - hundreds of new environmental claims were filed in 2023, with many aimed at companies allegedly misrepresenting their progress on tackling climate change. And most of these cases ended in the claimants' favour.

Featured chart

A chart showing oil stocks since the Paris Agreement in 2015, and specifically how oil has lagged the wider stock index

Source: Bloomberg

Our featured chart shows the S&P500’s performance compared to the S&P Global Oil Index (an index tracking the world’s largest, publicly traded, oil and gas companies) since the Paris Agreement was signed in December 2015.

Why’s this worth sharing?

With the oil and gas sector seen as benefitting from Russia’s invasion of Ukraine and the knock-on energy crisis, it’s worth highlighting the longer-term underperformance felt by the sector compared to general market indices. As the risk of these assets becoming stranded (and losing value) grows many environmentally-oriented investors and organisations are avoiding investing in the sector completely.

However, not all oil and gas stocks are created equal. The sector could play an important role in the transition to net zero and companies that have a clear decarbonisation strategy and are actively shifting into renewables, may offer interesting opportunities.

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.  

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