Energy prices are on the rise everywhere. Here, wholesale natural gas prices have just hit record highs – up 100% in a month. In the US, petrol prices are at their highest for seven years. In China the government has begun to ration electricity. In India, coal supplies are so low (a few days’ worth) that power cuts are almost definitely on the way. It rather looks, says Gavekal research group, as if the world is “in the grip of a full-blown energy crisis”. There is lots to think about as a result. You might want to have a good look at just how diversified your portfolio is: energy crises have a history of opening the door to inflationary spirals. That’s a particular risk when combined with rising wages and rising taxation. Are you ready (see this week's magazine for how much markets hate stagflation)?
But there is something else you should do: check the environment, social and governance (ESG) criteria your fund manager uses when it chooses – and rejects – possible investments. They could be part of the problem. These last few years, it has been all the rage in the investment industry to signal concern for society by announcing that you will not invest in grubby stuff. Only last month, Harvard University said it would divest its $42bn endowment from filthy fossil fuels. It joins another 1,337 institutions globally, managing over $14trn, who have made the same commitment.
That sounds nice. But as we are finding out, the consequences are not. The immediate causes of the energy crises in different countries vary, but drill down, says Gavekal, and they are all due to “market distortions caused by deliberate policies” – policies that in large part reflect the desire to go green. This is theoretically laudable. But we can’t go fully green anywhere near as fast as activists and governments think we should.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Global energy use tends to rise at about 2% a year. And regardless of how fast we build renewables, we will need fossil fuels as back-up for decades to come, not least because building renewable energy capacity takes a lot of energy in itself. As Edward Chancellor notes on Breakingviews.com, it takes four to five years to recoup the energy that goes into making turbines and other renewables. That means the $16trn of green investments planned globally will mean concurrently soaring demand for oil. Want clean energy? You need dirty energy.
A shame then that investment in fossil fuel production and exploration is falling sharply and that oil majors are loath to invest in big new projects, for the simple reason that no one will back them. Over the last five years, the world has discovered about 12 billion barrels of oil a year and consumed three times as much (more on this in next week’s magazine), while global oil and gas upstream capital spending has fallen from nearly $800bn in 2013 to below $350bn this year. The result will be unpleasant – in terms of growth, in terms of living standards and in terms of the actual goal, our ability to efficiently attempt our energy transition.
So look at your fund manager’s policies. They may be divesting from fossil fuels. They may feel good about all the ESG boxes they can tick. Their policy, they will tell you, is ESG-compliant. They’ll be right. But if that ESG policy is not practical – if helps create inflation, falling living standards and general misery – and if it turns the public against the idea of the green transition... is it also ethical? It’s a question worth asking.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
From oil to copper: how to trade wisely when capitalising on mega trends
By MoneyWeek Published
Retailer price inflation falls to near-2 year low, new figures show
A fall in supermarket inflation led the way, with fresh food price hikes dropping significantly since January.
By Henry Sandercock Published
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
Magic mushrooms — an investment boom or doom?
Investing in these promising medical developments might see you embark on the trip of a lifetime.
By Bruce Packard Published
What pension providers don't tell you about your retirement money
Check the small print from your pension provider or risk losing thousands.
By Merryn Somerset Webb Published
Should you invest in sector funds?
Sector funds can be a useful way to fine-tune a portfolio or track a theme, but check what the index holds.
By Cris Sholto Heaton Published
Three high-quality global companies for growth
James Harries, a senior fund manager at STS Global Income & Growth Trust highlights three favourites.
By James Harries Published
Four high-quality stocks set for decades of dividend and earnings growth
Charles Luke, an investment manager for Murray Income Trust, highlights four favourite high-quality stocks.
By Charles Luke Published
Humana sees healthy growth in US healthcare
Humana is a major player in the American market and the stock’s valuation looks reasonable.
By Stephen Connolly Published