What investors think about the future of fossil fuels
Investors in the oil-and-gas industry want companies to get greener, and they're losing faith that the sector, which is underperforming broader market indices, is a good long-term bet, per a new Boston Consulting Group survey of investors.
Why it matters: The investor views come as the industry is facing its highest levels of uncertainty and environmental pressure in a long time, if ever.
- The coronavirus pandemic's unknown duration and evolving government policy responses making gauging the near- and long-term future of oil consumption very hard.
- Some analysts see global demand peaking or at least hitting a plateau within the next decade (if it hasn't happened already).
- Meanwhile, policymakers in Europe and, if Joe Biden wins, in the U.S. are vowing to impose tougher climate policies. China, the world's largest oil importer, is also promising an aggressive long-term carbon-cutting effort.
The big picture: Just a quarter see oil-and-gas stocks playing a more prominent role in their portfolios in the future, and less than a third see the industry as a more attractive investment than renewables.
- They also typically want to see international oil companies undertake more aggressive overhauls to improve total shareholder returns and provide more clarity on their climate posture.
A few more takeaways:
- 80% want to see companies set long-term emissions-cutting targets, something that big U.S.-based companies have resisted that's now standard among European-headquartered giants like Shell.
- 52% agree it's "extremely important" for currently healthy companies to strengthen their balance sheets, compared to 21% who say it's "extremely important" to maintain or increase shareholder payouts.
- 49% say it's "extremely important" for companies to build up a portfolio in renewables and other fossil fuel alternatives, while another 33% say it's "somewhat" important.
- 63% say it's very or somewhat important for companies to pursue an environmental, social and governance (ESG) agenda even if that means lower earnings per share.
- Only a third of investors say it's important for companies to increase hydrocarbon reserves.